8

Linear Programming
Applications

Copyright ©2015 Pearson Education, Inc.

Modified by Nigussie Mengesha
 LEARNING OBJECTIVES
After completing this chapter, students will be able to:
1. Model a wide variety of medium to large LP
problems.
2. Understand major application areas, including
marketing, production, labor scheduling, fuel
blending, transportation, and finance.
3. Gain experience in solving LP problems with Excel
Solver software.

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 CHAPTER OUTLINE
8.1 Introduction
8.2 Marketing Applications
8.3 Manufacturing Applications
8.4 Employee Scheduling Applications
8.5 Financial Applications
8.6 Ingredient Blending Applications
8.7 Other Linear Programming Applications
Integer Programming

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 Introduction
• The graphical method of LP is useful for
understanding how to formulate and solve
small LP problems
• Many types of problems can be solved using
LP
• Principles developed here are applicable to
larger problems

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 Marketing Applications
• Linear programming models have been used
in the advertising field as a decision aid in
selecting an effective media mix
• Media selection LP problems can be
approached from two perspectives
– Maximize audience exposure
– Minimize advertising costs

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 Win Big Gambling Club
Club promotes gambling junkets to the Bahamas
• $8,000 per week to spend on advertising
• Goal is to reach the largest possible high-potential audience
• Media types and audience figures shown below
• Place at least five radio spots per week
• No more than $1,800 can be spent on radio advertising each
week
• Advertising options
AUDIENCE COST PER MAXIMUM ADS
MEDIUM REACHED PER AD AD ($) PER WEEK
TV spot (1 minute) 5,000 800 12
Daily newspaper (full-
page ad) 8,500 925 5

Radio spot (30 seconds,

2,400 290 25
prime time)
Radio spot (1 minute, 2,800 380 20
afternoon)
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 Win Big Gambling Club
• Problem formulation
X1 = number of 1-minute TV spots taken each week
X2 = number of daily newspaper ads taken each week
X3 = number of 30-second prime-time radio spots taken each week
X4 = number of 1-minute afternoon radio spots taken each week
Objective:
Maximize audience coverage = 5,000X1 + 8,500X2 + 2,400X3 + 2,800X4
Subject to X1 ≤ 12 (max TV spots/wk)
X2 ≤5 (max newspaper ads/wk)
X3 ≤ 25 (max 30-sec radio spots/wk)
X4 ≤ 20 (max 1-min radio spots/wk)
800X1 + 925X2 + 290X3 + 380X4 ≤ $8,000 (weekly advertising
budget)
X3 + X4 ≥ 5 (min radio spots contracted)
290X3 + 380X4 ≤ $1,800 (max dollars spent on radio)
X1, X2, X3, X4 ≥0
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 Solution in Excel 2013
PROGRAM 8.1 – Win Big Solution

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 Manufacturing Applications
• Production Mix
– LP can be used to plan the optimal mix of products
to manufacture
– Company must meet a myriad of constraints
• Financial concerns
• Sales demand
• Material contracts
• Union labor demands
– Primary goal is to generate the largest profit
possible

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 Fifth Avenue Industries
• Produces four varieties of ties
– Expensive all-silk
– All-polyester
– Two are polyester-cotton or silk-cotton blends
• Cost and availability of the three materials
used in the production process
MATERIAL AVAILABLE PER
MATERIAL COST PER YARD ($) MONTH (YARDS)
Silk 24 1,200
Polyester 6 3,000
Cotton 9 1,600

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 Fifth Avenue Industries
• The firm has contracts with several major
department store chains
– Contracts require a minimum number of ties
– May be increased if demand increases
• Goal is to maximize monthly profit
• Decision variables
X1 = number of all-silk ties produced per month
X2 = number all-polyester ties
X3 = number of blend 1 polyester-cotton ties
X4 = number of blend 2 silk-cotton ties
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 Fifth Avenue Industries
TABLE 8.1 – Data for Fifth Avenue

MATERIAL
SELLING MONTHLY REQUIRED
VARIETY OF PRICE PER CONTRACT MONTHLY PER TIE MATERIAL
TIE TIE ($) MINIMUM DEMAND (YARDS) REQUIREMENTS

All silk 19.24 100% silk

5,000 7,000 0.125

All polyester 8.70 100% polyester

10,000 14,000 0.08
Poly-cotton 50% polyester –
9.52
blend 1 13,000 16,000 0.10 50% cotton

Silk-cotton 60% silk – 40%

10.64
blend 2 5,000 8,500 0.11 cotton

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 Fifth Avenue Industries
• Establish profit per tie
POLY-
SILK ESTER COTTON MATERIAL SELLING
REQ’D COST REQ’D COST REQ’D COST COST PRICE PROFIT

All-silk X1
0.125 $24.00 $3.00 $19.24 $16.24
All-polyester X2
0.08 $6 $0.48 $8.70 $8.22
Poly-cotton blend X3
0.05 $6 0.05 $9 $0.75 $9.52 $8.77
Silk-cotton blend X4
0.066 $24.00 0.044 $9 $1.98 $10.64 $8.66

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 Fifth Avenue Industries
Objective function
Maximize profit = $16.24X1 + $8.22X2 + $8.77X3 + $8.66X4
Subject to 0.125X1+ 0.066X4 ≤ 1200 (yds of silk)
0.08X2 + 0.05X3 ≤ 3,000 (yds of polyester)
0.05X3 + 0.44X4 ≤ 1,600 (yds of cotton)
X1 ≥ 5,000 (contract min for silk)
X1 ≤ 7,000 (contract min)
X2 ≥ 10,000 (contract min for all polyester)
X2 ≤ 14,000 (contract max)
X3 ≥ 13,000 (contract min for blend 1)
X3 ≤ 16,000 (contract max)
X4 ≥ 5,000 (contract min for blend 2)
X4 ≤ 8,500 (contract max)
X1, X2, X3, X4 ≥ 0
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 Solution in Excel 2013
PROGRAM 8.3 – Fifth Avenue Solution

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 Employee Scheduling Applications

• Labor Planning
– Address staffing needs over a particular time
– Especially useful when there is some flexibility in
assigning workers that require overlapping or
interchangeable talents

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 Hong Kong Bank
• Hong Kong Bank of Commerce and Industry
requires between 10 and 18 tellers depending
on the time of day
• The bank wants a schedule that will minimize
total personnel costs
– Lunch time from noon to 2 pm is generally the
busiest
– Bank employs 12 full-time tellers, many part-time
workers

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 Hong Kong Bank
– Part-time workers must put in exactly four hours
per day, can start anytime between 9 am and 1
pm, and are inexpensive
– Full-time workers work from 9 am to 3 pm and
have 1 hour for lunch
– Part-time hours are limited to a maximum of 50%
of the day’s total requirements
– Part-timers earn $8 per hour on average
– Full-timers earn $100 per day on average
– It will release one or more of its full-time tellers if it
is profitable to do so

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 Hong Kong Bank
• Labor requirements
TABLE 8.4

TIME PERIOD NUMBER OF TELLERS REQUIRED

9 am – 10 am 10
10 am – 11 am 12
11 am – Noon 14
Noon – 1 pm 16
1 pm – 2 pm 18
2 pm – 3 pm 17
3 pm – 4 pm 15
4 pm – 5 pm 10

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 Hong Kong Bank
• Variables
F = full-time tellers
P1 = part-timers starting at 9 am (leaving at 1
pm)
P2 = part-timers starting at 10 am (leaving at 2
pm)
P3 = part-timers starting at 11 am (leaving at 3
pm)
• Objective
P4 = part-timers starting at noon (leaving at 4
pm)
Minimize total daily
= $100F
P5 cost = part-timers
personnel + $32(P
starting at 11 +pm
P2(leaving
+ P3 + Pat
4 +5P5)

pm)

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 Hong Kong Bank
• Constraints
F + P1 ≥ 10 (9 am – 10 am needs)
F + P1 + P2 ≥ 12 (11 am – noon needs)
0.5F + P1 + P2 + P3 ≥ 14 (1 pm – 2 pm needs)
0.5F + P1 + P2 + P3 + P4 ≥ 16 (noon – 1 pm needs)
F + P2 + P3 + P4 + P5 ≥ 18 (1 pm – 2 pm needs)
F + P3 + P4 + P5 ≥ 17 (2 pm – 3 pm needs)
F + P4 + P5 ≥ 15 (3 pm – 4 pm needs)
F + P5 ≥ 10 (4 pm – 5 pm needs)
F ≤ 12 (12 full-time tellers)
4P1 + 4P2 + 4P3 + 4P4 + 4P5 ≤ 0.50(112) (max 50% part-timers)
F, P1, P2, P3, P4, P5 ≥ 0 (nonnegativity)

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 Solution in Excel 2013
PROGRAM 8.5 – Labor Planning Solution

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 Financial Applications
• Portfolio Selection
– Bank, investment funds, and insurance companies
often have to select specific investments from a
variety of alternatives
– Overall objective is generally to maximize the
potential return on the investment given a set of
legal, policy, or risk restraints

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 International City Trust
• International City Trust (ICT) invests in short-term
trade credits, corporate bonds, gold stocks, and
construction loans
• The board of directors has placed limits on how much
can be invested in each area

Investment possibilities
INTEREST MAXIMUM INVESTMENT
INVESTMENT EARNED (%) ($ MILLIONs)
Trade credit 7 1.0
Corporate bonds 11 2.5
Gold stocks 19 1.5
Construction loans 15 1.8

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 International City Trust
• ICT has $5 million to invest and wants to
accomplish two things
– Maximize the return on investment over the next
six months
– Satisfy the diversification requirements set by the
board
• The board has decided that at least 55% of the funds
must be invested in gold stocks and construction loans
and no less than 15% be invested in trade credit

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 International City Trust
• Variables

X1 = dollars invested in trade credit

X2 = dollars invested in corporate bonds
X3 = dollars invested in gold stocks
X4 = dollars invested in construction loans

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 International City Trust
• Formulation
Maximize
dollars of
interest = 0.07X1 + 0.11X2 + 0.19X3 + 0.15X4
earned

subject to: X1 ≤ 1,000,000

X2 ≤ 2,500,000
X3 ≤ 1,500,000
X4 ≤ 1,800,000
X3 + X4 ≥ 0.55(X1 + X2 + X3 + X4)
X1 ≥ 0.15(X1 + X2 + X3 + X4)
X1 + X2 + X3 + X4 ≤ 5,000,000
X1, X2, X3, X4 ≥ 0
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 Solution in Excel 2013
PROGRAM 8.6 – ICT Portfolio Solution

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Ingredient Blending Applications
• Diet Problems
– One of the earliest LP applications
– Used to determine the most economical diet for
hospital patients
– This is also known as the feed mix problem

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 Whole Food Nutrition Center
• Uses three bulk grains to blend a natural cereal
• Advertises that the cereal meets the U.S.
Recommended Daily Allowance (USRDA) for four key
nutrients
• Select the blend that will meet the requirements at the
minimum cost
NUTRIENT USRDA
Protein 3 units
Riboflavin 2 units
Phosphorus 1 unit
Magnesium 0.425 unit

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 Whole Food Nutrition Center
• Variables
XA = pounds of grain A in one 2-ounce serving of cereal
XB = pounds of grain B in one 2-ounce serving of cereal
XC = pounds of grain C in one 2-ounce serving of cereal

TABLE 8.5 – Whole Food’s Natural Cereal requirements:

COST PER PROTEIN RIBOFLAVIN PHOSPHOROUS MAGNESIUM

GRAIN POUND (CENTS) (UNITS/LB) (UNITS/LB) (UNITS/LB) (UNITS/LB)
A 33 22 16 8 5
B 47 28 14 7 0
C 38 21 25 9 6

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 Whole Food Nutrition Center
• Formulation

Minimize total cost of

mixing a 2-ounce serving = $0.33XA + $0.47XB + $0.38XC

subject to
22XA + 28XB + 21XC ≥ 3 (protein units)
16XA + 14XB + 25XC ≥ 2 (riboflavin units)
8XA + 7XB + 9XC ≥ 1 (phosphorous units)
5XA + 0XB + 6XC ≥ 0.425 (magnesium units)
XA + XB + XC = 0.125 (total mix)
XA, XB, XC≥ 0
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 Solution in Excel 2013 This solution is in pounds of grain
Expressed as ounces/serving, the
PROGRAM 8.8 – Whole Food Diet Solution
optimal mix is:
0.4 oz Grain A
0.8 oz Grain B
0.8 oz Grain C

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 Low Knock Oil Company
• Company produces two grades of cut-rate
gasoline for industrial distribution
• Regular and economy grades created by
blending two different types of crude oil
• The crude oil differs in cost and in its content
of crucial ingredients

CRUDE OIL INGREDIENT INGREDIENT COST/BARREL

TYPE A (%) B (%) ($)
X100 35 55 30.00
X220 60 25 34.80

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 Low Knock Oil Company
• Variables

X1 = barrels of crude X100 blended to produce

the refined regular
X2 = barrels of crude X100 blended to produce
the refined economy
X3 = barrels of crude X220 blended to produce
the refined regular
X4 = barrels of crude X220 blended to produce
the refined economy

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 Low Knock Oil Company
• Formulation
Minimize cost = $30X1 + $30X2 + $34.80X3 + $34.80X4

subject to
X1 + X3 ≥ 25,000 (demand for regular)
X2 + X4 ≥ 32,000 (demand for economy)

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 Low Knock Oil Company
•45%
Formulation
of each barrel of regular must be ingredient A
(X1 + X3) = total amount of crude blended to produce regular
Minimize cost = $30X1 + $30X2 + $34.80X3 + $34.80X4
Thus,
0.45(X1 + X3) = minimum amount of ingredient A required
But
subject to
X1 0.35X1 + 0.60X
+ X33 = amount≥of 25,000
ingredient A in regular
(demand for regular)
So X2 + X4 ≥ 32,000 (demand for economy)
0.35X1 + 0.60X3 ≥ 0.45X1 + 0.45X3
or
– 0.10X1 + 0.15X3 ≥ 0 (A in regular constraint format)

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 Low Knock Oil Company
• Formulation
Minimize cost = $30X1 + $30X2 + $34.80X3 + $34.80X4

subject to
X1 + X3 ≥ 25,000 (demand for regular)
X2 + X4 ≥ 32,000 (demand for economy)
– 0.10X1 + 0.15X3 ≥ 0 (ingredient A in regular)
0.05X2 – 0.25X4 ≤ 0 (ingredient B in economy)
X 1, X 2, X 3, X 4 ≥ 0 (nonnegativity)

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 Solution in Excel 2013
PROGRAM 8.9 – Low Knock Oil Solution

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 Other LP Applications
• Revenue Management
– Developed by American Airlines
– Differential pricing of seats to generate additional revenue
– How many seats to make available to each type of
passenger
– Adopted by hotel industry
• Data Envelopment Analysis
• Transportation, Transshipment, Assignment Problems
– Very widely used in business
– Special purpose algorithms have been developed
– Allow more rapid solution of these types of problems

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 Integer Programming
• An integer programming model is one where
one or more of the decision variables has to
take on an integer value in the final solution
• Three types of integer programming problems
1. Pure integer programming – all variables have
integer values
2. Mixed-integer programming – some but not all of
the variables will have integer values
3. Zero-one integer programming – special cases in
which all the decision variables must have integer
solution values of 0 or 1

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 Integer Programming
• Solving
• An integer an integer
programming modelprogramming
is one where
one or more problem
of the is much more
decision difficult
variables hasthan
to
take on ansolving
integeran LP problem
value in the final solution
• Solution
• Three types timeprogramming
of integer required mayproblems
be
excessive
1. Pure integer programming – all variables have
integer values
2. Mixed-integer programming – some but not all of
the variables will have integer values
3. Zero-one integer programming – special cases in
which all the decision variables must have integer
solution values of 0 or 1

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 Harrison Electric Company Example
of Integer Programming
• Company produces two products, old-
fashioned chandeliers and ceiling fans
• Both require a two-step production process
involving wiring and assembly
– It takes about 2 hours to wire each chandelier and
3 hours to wire a ceiling fan
– Final assembly of the chandeliers and fans
requires 6 and 5 hours, respectively
– Only 12 hours of wiring time and 30 hours of
assembly time are available
– Each chandelier produced nets the firm $7 and
each fan $6
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 Harrison Electric Company Example
of Integer Programming
Production mix LP formulation

Maximize profit = $7X1 + $6X2

subject to 2X1 + 3X2 ≤ 12 (wiring hours)
6X1 + 5X2 ≤ 30 (assembly hours)
X1, X2 ≥ 0
where
X1 = number of chandeliers produced
X2 = number of ceiling fans produced

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 Harrison Electric Company Example
of Integer Programming
FIGURE 10.1 – X2
Harrison Electric
Problem 6–

5–
6X1 + 5X2 ≤ 30

4–
+ = Possible Integer Solution

3– +

Optimal LP Solution
+ + + (X1= 3.75, X2 = 1.5, Profit = $35.25
2–

2X1 + 3X2 ≤ 12
1– + + + +

| | | | | |
0 1 2 3 4 5 6 X1

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 Harrison Electric Company Example
of Integer Programming
• Production planner recognizes this is an
integer problem
– First attempt at solving it is to round the values to
X1 = 4 and X2 = 2
– However, this is not feasible
– Rounding X2 down to 1 gives a feasible solution,
but it may not be optimal
• This could be solved using the enumeration
method
– Generally not possible for large problems

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 Harrison Electric Company Example
of Integer Programming
CHANDELIERS (X1) CEILING FANS (X2) PROFIT ($7X1 + $6X2)
0 0 $0
TABLE 10.1 – 1 0 7
Integer Solutions to 2 0 14
the Harrison Electric 3 0 21
Company Problem
4 0 28
5 0 35 Optimal solution to
0 1 6 integer programming
problem
1 1 13
2 1 20
3 1 27
4 1 34 Solution if rounding
0 2 12 is used
1 2 19
2 2 26
3 2 33
0 3 18
1 3 25
0 4 24
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 Harrison Electric Company Example
of Integer Programming
CHANDELIERS (X1) CEILING FANS (X2) PROFIT ($7X1 + $6X2)
0 0 $0
TABLE 10.1 – 1 0 7
Integer Solutions to 2 0 14
the Harrison Electric 3 0 21
Company Problem
4 0 28
5 0 35 Optimal solution to
0 1 6 integer programming
• The optimal1 integer solution is1 less 13
problem
than the optimal
2 LP solution of1 $35.25 20
• An integer solution
3 can never 1be better 27

than the LP4solution and is usually

1 a 34 Solution if rounding
is used
lesser value0 2 12
1 2 19
2 2 26
3 2 33
0 3 18
1 3 25
0 4 24
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 Using Software
PROGRAM 10.2 – Excel 2013 Solver Solution for Harrison Electric Problem

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 Copyright

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