Formulation of Linear

Programming Problems
(Module 3 Part 1)
 Learning Objectives:
1. Define linear programming.
2. Identify the basic assumptions and properties of
linear programming.
3. Formulate linear programming problems applied to
Marketing, Finance and Operations Management.
 Linear Programming (Anderson et al., 2019)
● Linear programming has nothing to do with computer
programming.
● The use of the word “programming” here means
“choosing a course of action.”
● Linear programming involves choosing a course of
action when the mathematical model of the problem
contains only linear functions.
 Linear Programming (LP) Problem

• The maximization or minimization of some quantity is the objective

in all linear programming problems.
• All LP problems have constraints that limit the degree to which the
objective can be pursued.
• A feasible solution satisfies all the problem's constraints.
• An optimal solution is a feasible solution that results in the largest
possible objective function value when maximizing (or smallest
when minimizing).
 Linear Programming (LP) Problem
• A graphical solution method can be used to solve a linear program
with two variables.
• If both the objective function and the constraints are linear, the
problem is referred to as a linear programming problem.
• Linear functions are functions in which each variable appears in a
separate term raised to the first power and is multiplied by a
constant (which could be 0).
• Linear constraints are linear functions that are restricted to be "less
than or equal to", "equal to", or "greater than or equal to" a constant.
 Problem Formulation

• Problem formulation or modeling is the process of translating a

verbal statement of a problem into a mathematical statement.
• Formulating models is an art that can only be mastered with
practice and experience.
• Every LP problems has some unique features, but most
problems also have common features.
• General guidelines for LP model formulation are illustrated on
the slides that follow.
 Guidelines for Model Formulation

• Understand the problem thoroughly (If possible, tabulate the given

information in the problem.
• Describe the objective.
• Describe each constraint.
• Define the decision variables.
• Write the objective in terms of the decision variables.
• Write the constraints in terms of the decision variables.
Two Most Common Allocation Problems of LP (Uy et al., 2013)
1. Product-Mix Problem (Maximization)
In this problem, two or more products are being produced using
limited resources, such as personnel, raw materials, and machines.
This involves finding which products to include in the production plan
and in what quantities these products should be produced.

2. Blending Problem (Minimization)

This problem aims to determine the best blend of available
ingredients to form a certain quantity of a product under strict
specifications. The best blend is the least-cost blend of the required
inputs.
 Components of LP Model (Uy et al., 2013)
I. Decision Variables
-also called controllable or independent variable
-variables can be quantities of the resources to be allocated, or the
number of units produced
-values are unknown and are searched for to provide an optimal solution
-depend on the type of LP problem being considered
II. Objective Function
-written as a linear function
-objective is to maximized (revenue, market share) or minimized (costs)
*Profit or Cost coefficients express the rate at which the value of the
objective function increases or decreases.
 Components of LP Model (Uy et al., 2013)
III. Constraints
-the uncontrollable restrictions, requirements, or regulations
-composed of:
a) input-output (technology) variables – indicate the rate at which a
given resource is depleted or utilized
b) capacities (availability) of the various resources – usually expressed
as some upper or lower limit; can also express minimum requirements
c) limits to the decision variables – positive, negative, unrestricted
Note: Normally, the LP attempts to optimize a single goal. If the real-world
problem involves several goals, then select a primary goal whose level is
to be maximized or minimized, and transform all other goals into
constraints, which must only be satisfied.
 Operations Management Applications
(Anderson et al., 2019)
● LP can be used in operations management to aid in
decision-making about product mix, production scheduling,
staffing, inventory control, capacity planning, and other
issues.

● Typical constraints include limitations on production

capacity, labor capacity, storage space, and more.
 Problem on Product mix
Production must be scheduled for two types of machines, machine 1
and machine 2. One hundred twenty hours of time can be scheduled
for machine 1, and 80 can be scheduled for machine 2. Production
during the scheduling period is limited to two products, chairs and
tables. Each chair requires 2 hours of process time on each
machine. Each table requires 3 hours on machine 1 and 1.5 hours
on machine 2. The profit is P250 per chair and P500 per table. Both
types of products can be readily marketed; consequently, production
should be scheduled with the objectives of maximizing profit.
 Product Machine 1 Machine 2 Profit
Processing Time Processing Time Contribution/ Unit
(in hours) (in hours) (in Pesos)
Chairs (x) 2 2 250
Tables (y) 3 1.5 500
Total 120 80

Formulation of the LP Problem /Model:

I. Decision Variables

x = quantity of chairs to be produced in order to maximize the profit

y = quantity of tables to be produced in order to maximize the profit
II. Objective Function
Since the profit realized from selling a chair is described as 250x
while the profit from selling a table is said to be 500y, then the total profit
(z) to be maximized is expressed as 250x + 500y.

III. Constraints
1. Machine 1 Processing Time Constraint: There are 120 hours of
machine 1 processing time available, each unit of chair requires only 2
hours whereas each table requires 3 hours. This is expressed as:

2x + 3y ≤ 120
demand for Machine 1 supply of machine 1
processing time
III. Constraints (continuation)
2. Machine 2 Processing Time Constraint: There are 80 hours of
machine 2 processing time available, each unit of chair requires 2 hours
whereas each table requires only 1.5 hours. This is expressed as:

2x + 1.5y ≤ 80

3. Non-negativity Constraint: This constraint is also known as logical

constraint because it is not possible to produce a negative number of
product that is, both x and y must be nonnegative (zero or positive). This
constraint is expressed as:

x ≥ 0, y ≥ 0
In summary, the problem is to find the best production plan so that the
total profit will be maximized. The problem can now be written in
standard form as follows:

Max z = 250x + 500y Objective

Function
s.t. 2x + 3y < 120
“Regular”
2x + 1.5y < 80 Constraints

x > 0 and y > 0 Non-negativity

Constraints
 A sample on Blending Problem (Uy et al., 2013)
Pedigree Company provides overnight lodging for a variety of pet. A
particular feature at Pedigree Co. is the quality of care the pets receive,
including excellent food. The Co.'s dog food is made by mixing two
brand name dog food products to obtain what the Co. calls "well-
balanced dog diet". The data for the two dog foods are as follows:
Dog Food Cost/ounce Protein (%) Fat (%)
Bark Bits P3.00 35 15
Canine Chow P2.50 25 30
If the company wants to be sure that the dogs receive at least 5 ounces of
protein and at least 3 ounces of fat per day, what is the minimum cost mix
of the two dog food products?
Formulation of the LP Problem /Model:
I. Decision Variables
x = number of ounces of Bark Bits to be included
y = number of ounces of Canine Chow to be included
II. Objective Function
The cost per ounce of Bark Bits is 3 pesos and the cost of Canine
Chow per ounce is 2.5 pesos. The total cost, z, is therefore 3x + 2.5y.
This is to be minimized.

III. Constraints
1. Protein Constraint: the company wants to be sure that the dogs
receive at least 5 ounces of protein per day. This is expressed as :
.35x + .25y ≥ 5
III. Constraints (continuation
2. Fat Constraint: the company wants to be sure that the dogs
receive at least 3 ounces of fat per day. This limitation is expressed as :
.15x + .30y ≥ 3

3. Non-negativity Constraint: This constraint is also known as logical

constraint because it is not possible to produce a negative number of
product that is, both x and y must be nonnegative (zero or positive). This
constraint is expressed as:
x ≥ 0, y ≥ 0
The summarized form of this blending problem is to find the best daily
mix of Bark Bits and Canine Chow so that the total cost will be
minimized.. The problem can now be written in standard form as follows:

Min z = 3x + 2.5y

s.t. .35x + .25y > 5 Protein Constraint

.15x + .30y > 3 Fat Constraint

x > 0 and y > 0 Non-negativity Constraints

 Financial Applications (Anderson et al., 2019)
● LP can be used in financial decision-making that involves
capital budgeting, make-or-buy, asset allocation, portfolio
selection, financial planning, and more.
● Portfolio selection problems involve choosing specific
investments – for example, stocks and bonds – from a
variety of investment alternatives.
● This type of problem is faced by managers of banks, mutual
funds, and insurance companies.
● The objective function usually is maximization of expected
return or minimization of risk.
Problem on Bank Portfolio Management (Uy et al., 2013, p.9)
Mendoza Bank has assets in the form of the loans and negotiable
securities which brings returns of 15% and 20%, respectively. The
bank has a total of P50 million, provided by demand deposit
accounts and time deposit accounts to allocate between loans and
securities. It is the policy of the bank to maintain a securities balance
equal to or greater than 20% of the total assets to meet anticipated
demand, and at least P16 million must be available for loans. Under
the given conditions, how should the bank allocate funds between
loans and securities to maximize total investment income?
 Formulation of the LP Problem /Model:
I. Decision Variables

x = amount (in million pesos) to be allocated for loans

y = amount (in million pesos) to be allocated for negotiable
securities to maximize the return on investment
II. Objective Function
The loans will yield 15% return on investment while the negotiable
interest yields 20% interest. Mathematically, the return on investment
for the loans and negotiable interest can be expressed by .15x and .20y
respectively, Hence, the total return on investment, z, is .15x + .20y.
This is to be maximized.
III. Constraints
1. Total budget constraint: The bank has P50 million fund to be
allocated for loans and negotiable securities.
x + y ≤ 50,000,000
2. Policy of the bank regarding securities: The funds allotted for this
type of asset must be at least 20% of the total asset.
y ≥ 0.20 (x + y)
y ≥ 0.20x + .20y
-0.20x + 0 .80y ≥ 0
3. Budget constraints for loans: At least P16 million must be
allocated for loans. This is expressed as:
x ≥ 16, 000, 000
III. Constraints (continuation)
4. Non-negativity Constraint: This constraint is also known as logical
constraint because it is not possible to produce a negative number of
product that is, both x and y must be nonnegative (zero or positive). This
constraint is expressed as:
x ≥ 0, y ≥ 0
The LP model for this problem can be summarized as follows:
Max z = .15x + .20y
s.t. x + y < 50,000,000 (Total budget constraint)
-0.20x + 0.80y > 0 (Bank policy on securities)
x > 16 ,000,000 (Budget constraints on loan)
x > 0 and y > 0 (Non-negativity constraint)
 Marketing Applications (Anderson et al., 2019)
● Marketing Research
• A firm conducts marketing research to learn about consumer
characteristics, attitudes, and preferences.
• Marketing research services include designing the study,
conducting surveys, analyzing data collected, and providing
recommendations for the client.
• In the research design phase, targets or quotas may be
established for the number and types of respondents to be
surveyed.
• The marketing research firm’s objective is to conduct the survey
so as to meet the client’s needs at a minimum cost.
Problem on Marketing Research (Anderson et al., 2019)
Market Survey, Inc. (MSI) specializes in evaluating
consumer reaction to new products, services, and advertising
campaigns. A client firm requested MSI’s assistance in
ascertaining consumer reaction to a recently marketed
household product.
During meetings with the client, MSI agreed to conduct
door-to-door personal interviews to obtain responses from
households with children and households without children. In
addition, MSI agreed to conduct both day and evening
interviews.
 The client’s contract called for MSI to conduct 1000 interviews
under the following quota guidelines:
1. Interview at least 400 households with children.
2. Interview at least 400 households without children.
3. The total number of households interviewed during the evening
must be at least as great as the number of households
interviewed during the day.
4. At least 40% of the interviews for households with children must
be conducted during the evening.
5. At least 60% of the interviews for households without children
must be conducted during the evening.
 Because the interviews for households with children take
additional interviewer time and because evening interviewers are
paid more than daytime interviewers, the cost varies with the type
of interview. Based on previous research studies, estimates of the
interview costs are as follows:

Interview Cost
Household Day Evening
Children $20 $25
No children$18 $20
 Formulation of the LP Problem /Model:
I. Decision Variables
In formulating the linear programming model for the MSI problem, we
utilize the following decision-variable notation:

DC = the number of daytime interviews of households

with children
EC = the number of evening interviews of households
with children
DNC = the number of daytime interviews of households
without children
ENC = the number of evening interviews of households
without children
II. Objective Function:
Min 20DC + 25EC + 18DNC + 20ENC
III. Constraints:
The constraint requiring a total of 1000 interviews is:
DC + EC + DNC + ENC = 1000
The specifications concerning the types of interviews:
• Households with children: DC + EC > 400

• Households without children: DNC + ENC > 400

• At least as many evening interviews as day interviews

EC + ENC > DC + DNC or -DC + EC - DNC + ENC > 0
III. Constraints (continuation)
The specifications concerning the types of interviews:
• At least 40% of interviews of households with children during the
evening:
EC > 0.4(DC + EC) or -0.4DC + 0.6EC > 0

• At least 60% of interviews of households without children during the

evening:
ENC > 0.6(DNC + ENC) or -0.6DNC + 0.4ENC > 0

The non-negativity requirements:

DC, EC, DNC, ENC > 0
The 4-variable, 6-constraint LP problem formulation is:
 Assignment
Formulate the LP Problem /Model (do not solve).
 References
Anderson, D. R., Sweeney, DJ., Williams, T.A., Camm, J.D., Cochran, J.J.,
& Ohlmann, J.W. (2019). An Introduction to Management Science:
Quantitative Approaches to Decision Making. Singapore: Cengage
Learning Asia Pte Ltd.
Cengage Learning Asia Philippines (2016). Chapter 2:
Introduction to Linear Programming [PowerPoint slides].
Cengage Learning Asia Philippines (2016). Chapter 4:Linear Programming
Applications in Marketing, Finance, and Operations [PowerPoint
slides].
Uy, C., et al, (2013). Quantitative Techniques in Business. S.M.A.R.T.
Innovations.