Introduction to

Linear Programming

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 Jones Investment
Evaluation Results on Some Alternatives
Potential Expected Jones's Liquidity Risk
Investment Return Rating Analysis Factor
Savings Account 4.0% A Immediate 0
Certificate of Deposite 5.2% A 5-year 0
Atlantic Lighting 7.1% B+ immediate 25
Arkansas REIT 10.0% B immediate 30
Bedrock Insurance Annuity 8.2% A 1-year 20
Nocal Mining Bond 6.5% B+ 1-year 15
Minicomp Systems 20.0% A immediate 65
Antony Hotel 12.5% C immediate 40

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Jones Investment

• Portfolio goals
– Expected annual return of at least 7.5%.
– At least 50% invested in “A-Rated” investments.
– At least 40% invested in immediately liquid investments.
– No more than $30,000 in savings accounts and
certificates of deposit.
• Problem summary
– Determine the amount to be placed in each investment.
– Minimize total overall risk.
– Invest all $100,000.
– Meet the investor goals (diversify).
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 Contoh 2
 Suatu perusahaan manufaktur memproduksi tiga jenis pakaian:
baju, celana pendek dan celana panjang. Untuk memprodusi tiga
jenis pakaian tersebut perusahaan memerlukan berbagai mesin
yang berbeda yang harus disewa. Untuk membuat baju
diperlukan pemakaian mesin A dengan ongkos sewa Rp 200 juta
per minggu; Untuk membuat celana pendek diperlukan
pemakaian mesin B dengan biaya sewa Rp 150 juta per minggu.
Untuk membuat celana panjang diperlukan pemakaian mesin C
dengan sewa Rp 100 juta per minggu. Kebutuhan kain dan
tenaga kerja ditunjukkan dalam tabel berikut. Sedangkan waktu
tenaga kerja yang tersedia adalah 150 jam per minggu dan 160 sq
yard kain tersedia.

TI-ITS 4
 Jenis pakaian Kebutuhan Jam Kebutuhan kain
tenaga kerja
Baju 3 4
Celana pendek 2 3
Celana panjang 6 4

Jenis pakaian Harga jual Biaya variabel

Baju 12 6

Celanan pendek 8 4

Celana panjang 15 8

TI-ITS 5
Introduction to LP
 The most often model used in OR is Linear
Programming (LP)
 A Linear Programming model seeks to maximize
or minimize a linear function, subject to a set of
linear constraints.
 The linear model consists of the following
components:
• A set of decision variables.
• An objective function.
• A set of constraints.

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 Introduction to LP
The Importance of Linear Programming
 Many real world problems lend themselves to
linear programming modeling.
 Many real world problems can be approximated
by linear models.
 There are well-known successful applications in:
 Manufacturing
 Marketing
 Finance (investment)
 Advertising
 Agriculture

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Introduction to LP
Assumptions of the linear programming model
 The parameter values are known with certainty.

 The objective function and constraints exhibit

constant returns to scale.
 There are no interactions between the decision
variables (the additivity assumption).
 The Continuity assumption: Variables can take
on any value within a given feasible range.

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 Linear Programming Modeling
 Stages of an application:
 Problem formulation

 Mathematical model

 Deriving a solution

 Model testing and analysis

 Implementation

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Our Very First Example
The Opti Mize Company manufactures two products
that compete for the same (limited) resources.
Relevant information is:

Product A B Available resources

Labor-hrs/unit 1 2 20 hrs/day
Machine hrs/unit 2 2 30 hrs/day
Cost/unit $6 $20 $180/day

Profit/unit $5 $15

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 Management is seeking a production
schedule that will increase the company’s
profit.

A linear programming model

can provide an insight and an
intelligent solution to this problem.

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 The Model
Decision Variables
Let X = number of units of product A to manufacture
Y = number of units of product B to manufacture

Max Profit = z = 5 X + 15 Y

Objectives
subject to:
X + 2 Y <= 20 (labor-hours)
2 X + 2 Y <= 30 (machine hours)
6 X + 20Y <= 180 ($ - budget)
X >= 0, Y >= 0

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 I want another
example
Okay.
I’ll give you
more !!

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 The Galaxy Industries Production Problem
–
A Prototype Example

 Galaxy manufactures two toy doll models:

 Space Ray.

 Zapper.

 Resources are limited to

 1000 pounds of special plastic.

 40 hours of production time per week.

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The Galaxy Industries Production Problem –
A Prototype Example
Marketing requirements
 Total production cannot exceed 700 dozens.
 Number of dozens of Space Rays cannot exceed
number of dozens of Zappers by more than 350.

Technological inputs
– Space Rays requires 2 pounds of plastic and 3 minutes of
labor per dozen.
– Zappers requires 1 pound of plastic and 4 minutes of labor
per dozen.

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The Galaxy Industries Production Problem –
A Prototype Example
The current production plan calls for:
 Producing as much as possible of the more profitable
product, Space Ray ($8 profit per dozen).
 Use resources left over to produce Zappers ($5 profit
per dozen), while remaining within the marketing
guidelines.

Formulate the problem as an LP to maximize profit.

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The Galaxy LP Model
 Decisions variables:
 X1 = Weekly production level of Space Rays (in dozens)
 X2 = Weekly production level of Zappers (in dozens)
 Objective Function:
 Weekly profit, to be maximized

Max 8X1 + 5X2 (Weekly profit)

subject to
2X1 + 1X2 <=1000 (Plastic)
3X1 + 4X2 <= 2400 (Production Time)
X1 + X2 <= 700 (Total production)
X1 - X2 <= 350 (Mix)
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X1>, X2 >= 0, (Nonnegativity) 17
Let
Exercise Yourself

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 Static Workforce Scheduling
 Number of full time employees on different days of the week
are given below.
 Each employee must work five consecutive days and then
receive two days off.
 The schedule must meet the requirements by minimizing the
total number of full time employees.

Day 1 = Monday 17
Day 2 = Tues. 13
Day 3 = Wedn. 15
Day 4 = Thurs. 19
Day 5 = Friday 14
Day 6 = Satur. 16
Day 7 = Sunday 11

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 Solution: Static Workforce Scheduling
LP Formulation:
Min. z = x1+ x2 + x3 + x4 + x5 + x6 + x7
subject to
x1 + x4 + x5 + x6 + x7  17
x1+ x2 + x5 + x6 + x7  13
x1+ x2 + x3 + x6 + x7  15
x1+ x2 + x3 + x4 + x7  19
x1+ x2 + x3 + x4 + x5  14
x2 + x3 + x4 + x5 + x6  16
x3 + x4 + x5 + x6 + x7  11
x1, x2, x3, x4, x5, x6, x7  0
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 The Classical Diet Problem
Mr. Arman has been placed on a diet by his Doctor (Dr.
Nunuk) consisting of two foods:
milk and ice cream. The doctor warned him to insure
proper consumption of nutrients to sustain life.
Relevant information is:

Nutrients milk Ice cream Weekly Requirement

I 2 mg/oz 3 mg/oz 3500 mg

II 6 mg/oz 2 mg/oz 7000 mg

cost/oz 10 cents 4.5 cents

Formulate the problem to minimize the cost of the diets

with respect to nutrient requirement
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A Marketing Example
The I. B. Adman Advertising Company is planning a large media
blitz covering television, radio, and magazines to sell management
science to the public. The company’s objective is to reach as many
people as possible. Results of a market survey show:
Television
Day time Prime Time Radio Magazines

cost per unit $40,000 75,000 30,000 15,000

# peoplereach 400,000 900,000 500,000 200,000
# business reach 300,000 400,000 200,000 100,000

The company has a budget of $800,000 to spend on the campaign. It

requires at least two million exposures among the business community.
Television must be limited to $500,000, at 3 units of day time and 2 units
of prime time must be purchased. Advertising units on both radio and
magazines should be between 5 and 10.
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Summary - The General LP Model
Max or Min z = c1 x1 + c2x2 + . . . + cnxn Objective
Function
subject to:
A11x1 + A12x2 + . . . + A1nxn <= b1

A21 x1 + A22x2 + . . . + A2nxn <= b2

Constraints
.
.
Am1x1 + Am2x2 + . . . + Amnxn <= bm

x1, x2, . . . xn >= 0

xj = decision variables or activity levels
cj = profit or cost coefficient
Aij = technology coefficient
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bi = resource capacities (right hand side values) 23
Summary – Assumptions of LP
 Deterministic
 all input data (parameters) are known and constant
 no statistical uncertainty
 Linear
 cost or profit is additive and proportional to the
activity levels
 output or resources consumed are additive and
proportional to the activity levels
 Non-integer
 variables (activity levels) are continuous

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 Summary - Solution Procedures
 Graphical
 two or three variables only
 Algebraic
 solve systems of equations
for corner points
 Simplex algorithm
 numerical, iterative
approach

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 Capital Budgeting Problem
 Five different investment opportunities are available for
investment.
 Fraction of investments can be bought.
 Money available for investment:
Time 0: $40 million
Time 1: $20 million
 Maximize the NPV of all investments.
Inv.1 Inv. 2 Inv. 3 Inv. 4 Inv. 5
Time 0 cash $11 $5 $5 $5 $29
Outflow
Time 1 cash $3 $6 $5 $1 $3
Outflow
NPV $17 $16 $16 $14 $39

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 Multi-Period Financial Models
 Determine investment strategy for the next three years
 Money available for investment at time 0 = $100,000
 Investments available : A, B, C, D & E
 No more than $75,000 in one invest
 Uninvested cash earns 8% interest
 Cash flow of these investments:

0 1 2 3
A -1 + 0.5 +1 0
B 0 -1 + 0.5 +1
C -1 + 1.2 0 0
D -1 0 0 + 1.9
E 0 0 -1 + 1.5

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 Solution: Multiperiod Financial Model
Decision Variables:
A, B, C, D, E : Dollars invested in the investments A, B, C, D, and E
St: Dollars invested in money market fund at time t (t = 0, 1, 2)
Formulation:
Maximize z = B + 1.9D + 1.5E + 1.08S2
subject to
A + C + D + S0 = 100,000
0.5A + 1.2C + 1.08S0 = B + S1
A + 0.5B + 1.08S1 = E + S2
A  75,000
B  75,000
C  75,000
D  75,000
E  75,000
A, B, C, D, E, S0, S1, S2  0

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 Multi-Period Workforce Scheduling
 Requirement of skilled repair time (in hours) is given below.
 At the beginning of the period, 50 skilled technicians are
available.
 Each technician is paid $2,000 and works up to 160 hrs per
month.
 Each month 5% of the technicians leave.
 A new technician needs one month of training, is paid $1,000
per month, and requires 50 hours of supervision of a trained
technician.
 Meet the service requirement at minimum cost.

Month 1 Month 2 Month 3 Month 4 Month 5

6,000 7,000 8,000 9,500 11,000

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 Solution: Multiperiod Workforce Scheduling
Decision Variables:

xt: number of technicians trained in period t

yt: number of experienced technicians in period t

Formulation:
Minimize z = 1000(x1 + x2 + x3 + x4 + x5) + 2000(y1 + y2 + y3 + y4 + y5)
subject to
160y1 - 50 x1  6000 y1 = 50
160y2 - 50 x2  7000 0.95y1 + x1 = y2
160y3 - 50 x3  8000 0.95y2 + x2 = y3
160y4 - 50 x4  9500 0.95y3 + x3 = y4
160y5 - 50 x5  11000 0.95y4 + x4 = y5

xt, yt  0, t = 1, 2, 3, … , 5

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