BSBI524 QUANTITATIVE METHODS 1

Module 3. MODELING WITH LINEAR PROGRAMMING

– MAXIMIZATION

Module 3. MODELING WITH LINEAR PROGRAMMING –

MAXIMIZATION
Week No : 3 and 4
Duration : 4 hrs

In the previous module, we used basic mathematical models (deterministic models)

to determine and simulate important business outcomes based on certain parameters and
decision points. As you can recall, the previous activities provided as with certain fixed
values (parameters) like selling price per
unit and fixed cost while allowing us to
determine certain levels of activity
measured in terms of number of units sold.
This is in the assumption that, (1) we are
certain that we can sell all units produced
and (2) we have unlimited resources to
produce the units demanded by our
customers.

Unfortunately, real life managers face problems that are less straightforward than
what is described above. In reality, resources are limited and certain uncontrollable
variables play in the entire business assumption. Typically, for many of the problems facing a
manager, certain restrictions or constraints will exist in terms of what can, and cannot, be
done. A manager may see a possible solution to a problem in terms of recruiting extra staff
but knows that approval for this will not be given by senior management. A solution to some
problem may exist if only the organization could raise extra capital to replace existing
production machinery but the manager knows that this is unlikely in the current economic
climate. In short, a manager will be restricted in terms of solutions that can be adopted and

Course Module – BSBI524 Quantitative Method By: MPDoblas

yet at the same time that manager is expected not only to solve the problem but, ideally, also
come up with the ‘best’ solution. These limitations results to constraints and such
constraints have to be factored in the creation of a mathematical model.

This section seeks to provide an introduction and direct application of Linear

Programming (LP) which is one of the models used by managers to arrive at the mentioned
‘best’ solution. This subject is divided into two modules – maximization and minimization
problems. At the end of the end of this module, the learners are expected to;

C2. Define and identify appropriate quantitative tools and techniques in solving
business related problems;

C4. Solve problems using appropriate quantitative tools and techniques related to
business situations;

C6. Conduct linear programming and decision analysis and critically evaluate
inferences on applied quantitative models;

TOPIC 1. BASICS OF LINEAR PROGRAMING

In the past years, LP has been applied extensively to military, industrial, financial,
marketing, accounting, and agricultural problems. Even though these applications are
diverse, all LP problems have several properties and assumptions in common and follows
certain steps or stages.

Assumptions of LP

1. Linearity - The model assumes that all relationships

are linear in form. One of the implicit aspects behind
such an assumption is that of proportionality. In this
example, this assumes that if we produce twice as much
C then we require twice as much of all the resources
that C requires. Clearly in the real world this may not
always be appropriate. Economies of scale may come in
to play after some output level is reached, for example, meaning that we may not
require twice as much labor for twice the output.
 BSBI524 QUANTITATIVE METHODS 3
Module 3. MODELING WITH LINEAR PROGRAMMING
– MAXIMIZATION

2. Divisibility - The second assumption is one of divisibility: that all variables are
continuous rather than discrete. In our context this implies that we can have fractions
of products or resources. Again, for some problems this is not a difficulty, for others it
might be. Clearly if our solution had shown that we had to produce, say, 3.2 bottles of
a product is physically impossible.
3. Certainty - The third assumption relates to
certainty: that we know for certain the numerical
values of the linear relationships specified. In
practice this can be a major difficulty in applying
LP to real problems.
4. Single objective - The last assumption
relates to the fact that we specify a single objective
which we seek. Again, in practice a manager may be searching for a solution which
satisfies several objectives simultaneously and not just a single one.

LP Stages

On the other hand, LP process involves three distinct stages. We will discuss each using
samples problems;

1. Formulation – getting the problem in the right form (creating the mathematical
model)
2. Solution – finding an optimal solution to the problem (graphical method)
3. Sensitivity analysis – seeing what happens when the problem is changed slightly.

Regardless, all problems seek to maximize or minimize some quantity, usually

profit or cost. We refer to this property as the objective function of an LP problem. For
example, the major objective of a typical manufacturer is to maximize profits. In the case of a
trucking or railroad distribution system, the objective might be to minimize shipping costs.

Course Module – BSBI524 Quantitative Method By: MPDoblas

In any event, this objective must be stated clearly and defined mathematically. It does not
matter, by the way, whether profits and costs are measured in cents, dollars, or millions of
dollars or whatever currency may be used.

TOPIC 2. MAXIMIZATION PROBLEMS

In this module, we will be dealing first with maximization problems. We will reserve
minimization problems in the next module. Nonetheless, the stages discussed and each
corresponding steps used will be the same for both. The end goal is to find the optimal
solution for the identified problem.

EXAMPLE: To illustrate each of the stages, we will be using the case of Hamad Town
Furniture Company. The company produces inexpensive tables and chairs. The production
process for each is similar in that both require a certain number of hours of carpentry work
and a certain number of labor hours in the painting and varnishing department. Each table
takes 4 hours of carpentry and 2 hours in the painting and varnishing shop. Each chair
requires 3 hours in carpentry and 1 hour in painting and varnishing. During the current
production period, 240 hours of carpentry time are available and 100 hours in painting and
varnishing time are available. Each table sold yields a profit of BD 70; each chair produced is
sold for a BD 50 profit.
Hint Box
Stage 1: Formulation
A common problem faced by some
Formulating a linear program involves students is in determining if the
developing a mathematical model to problem at hand is a minimization or
a maximization problem. While of
represent the managerial problem. Thus, in course, most cases will immediately
order to formulate a linear program, it is identify the objective, some cases
may not directly identify such.
necessary to completely understand the However, intuitively, businesses
managerial problem being faced. Once this often want to minimize cost to
increase profit. Thus, if the problem
is understood, we can begin to develop the provides profit per unit, then most
mathematical statement of the problem. An likely it’s a maximization problem.
On the other hand, if it provides cost
example of a mathematical problem is per unit, then it will more often than
provided below; not require a minimization objective.
 BSBI524 QUANTITATIVE METHODS 5
Module 3. MODELING WITH LINEAR PROGRAMMING
– MAXIMIZATION

Maximize $0.30X + $0.25Y Objective Function

Subject to (st):

4X + 2Y ≤ 20,000
X + 3Y ≤ 15,000 Constraints
X, Y≥0

The following are suggested steps in the formulation process;

1. Identify if it’s a minimization or maximization problem.

2. Identify the controllable (decision variables) and the uncontrollable values
(parameter)
3. Create the objective function
4. Create the constraints

Step 1: Identify if it’s a minimization or maximization problem

In the provided example, it is clear that it is a maximization problem. One hint is that
the problem provided profit per unit instead of cost per unit. Note however, that some cases
will require the minimization of profit. This is however a rare instance in real life problems.

Step 2: Identify the controllable (decision variables) and the uncontrollable values (parameter)

In this step, it is advised that you first identify write down first all constants (fixed
values) and label them properly. In most cases, there would be two or more product mixes to
produce (example: product A and product B or bread and biscuit) or two or more production
components to mix (example: wood and metal, flour and salt). It is suggested that you
denote them with X and Y for easier plotting in the Cartesian coordinate plane in the next
stage. Regardless of the assignment (X or Y), what is important is the consistency in labeling.
Using the example from Hamad Town Furniture Company, we have the following;

Course Module – BSBI524 Quantitative Method By: MPDoblas

Product Mix : Chair and Tables

We will denote X = Chair and Y = tables

Controllable values (decision variables) = units of X

units of Y

Uncontrollable values (parameters) = 4 hrs. painting required for tables

2 hrs. varnishing required for tables
3 hrs. painting required for chairs
1 hr. varnishing required for chairs
240 available hrs for painting
100 available hrs for varnishing
70 profit for table
50 profit for chairs
Step 3: Create the objective function

After identifying the parameters and decision variables, it is time to convert them into
their mathematical form. Recall that in step 1 we identified that the sample problem is a
maximization problem, thus it would be correct to write “maximize” as the label for the
objective function. The values identified in step two are also reiterated below so you can see
how the mathematical statement is mapped from its descriptive form in derived in step 2.

Controllable values (decision variables) = units of X (tables)

units of Y (chairs)
Uncontrollable values (parameters) = 4 hrs. painting required for tables
2 hrs. varnishing required for tables
3 hrs. painting required for chairs
1 hr. varnishing required for chairs
240 available hrs for painting
100 available hrs for varnishing
70 profit for table
50 profit for chairs

Maximize 70 X + 50 Y
 BSBI524 QUANTITATIVE METHODS 7
Module 3. MODELING WITH LINEAR PROGRAMMING
– MAXIMIZATION

Step 4: Create the constraints

Once done with the first part of the mathematical model (objective function), the next
step is to create the second part of the mathematical model - the constraints. Again, the
identified in step two are also reiterated below so you can see how the mathematical
statement is mapped from its descriptive form.

Controllable values (decision variables) = units of X (tables)

units of Y (chairs)
Uncontrollable values (parameters) = 4 hrs. painting required for tables
2 hrs. varnishing required for tables
3 hrs. painting required for chairs
1 hr. varnishing required for chairs
240 available hrs for painting
100 available hrs for varnishing
70 profit for table
50 profit for chairs
Subject to (st):

4X + 3Y ≤ 240 [painting constraint]

2X + Y ≤ 100 [varnishing constraint]
X, Y≥0 [non-negativity constraint]

To conclude the formulation stage, the complete mathematical model for the problem
is formulated as such;

Maximize 70 X + 50 Y

Subject to (st):

4X + 3Y ≤ 240
2X + Y ≤ 100
X, Y≥0

Course Module – BSBI524 Quantitative Method By: MPDoblas

 The model suggest that profit will be
Hint Box
maximized by adding the product of the
profit per unit of X (tables) and a certain There are common words or instances
associated to In terms of the inequality
number of units produced for tables and the sign (≥ or ≤). The greater than or equal to
inequality (≤) is associated to resource
profit per unit of Y (chairs) and a certain limitation such as limited time and raw
number of units produced for chairs. materials and often is used when the
terms “limited to” and “available” are
However, this has limitations since there are mentioned in the conditions. On the other
hand, (≥) is mostly associated to
only 240 hours available for painting and 100
minimum requirements for mixing or
hours for varnishing given each of the combining raw materials and is used
when the terms “up to”, “at least” and
product has different hour requirements for “must contain” are mentioned in the
both painting and varnishing. problem.

Stage 2: Solution (graphical method)

Having formulated the mathematical model we now seek some general method of
solution. The easiest way to solve a simple LP problem such as that of the Hamad Furniture
Company is with the graphical solution approach. The graphical procedure is useful only
when there are two decision variables (X and Y) in the problem. When there are more than
two variables, it is not possible to plot the solution on a two-dimensional graph and we must
turn to more complex approaches. Stage 2 has the following steps;

1) Graph the constraints.

2) Determine the solution by identifying the extreme corners
3) Use the objective function to find the optimal solution

Step 1: Graph the constraints

Recall that for the same example, the following are the identified constraints;

4X + 3Y ≤ 240 (constraint 1)
2X + Y ≤ 100 (constraint 2)
X, Y≥0 (non-negativity constraint)
 BSBI524 QUANTITATIVE METHODS 9
Module 3. MODELING WITH LINEAR PROGRAMMING
– MAXIMIZATION

First, we have to identify the points at which the line crosses both the horizontal and
vertical axes. To do so, we will convert the inequality to an equation. Thus, 4X + 3Y ≤ 240
becomes;

4X + 3Y = 240

To find the Y intercept, let X = 0 ;

4(0) + 3Y = 240
3Y = 240
3
Y = 80 thus, the Y intercept is (0 , 80)

To find the X intercept, let Y = 0 ;

4X + 3(0) = 240
4X = 240
4
X = 60 thus, the Y intercept is (60 , 0)

Step 1: Graph the constraints

X=0, Y=80

X=60, Y=0

Course Module – BSBI524 Quantitative Method By: MPDoblas

Doing the same for the second constraint 2X + Y ≤ 10, the X and Y intercept are;

Y intercept → 2(0) + Y = 100

Y = 10 0 (0, 100)

X intercept → 2X +(0)Y = 100

2X = 100
2 (50, 0)

Plot the second constraint in the Cartesian coordinate plane

X=0, Y=100

X=50, Y=0

X
 BSBI524 QUANTITATIVE METHODS 11
Module 3. MODELING WITH LINEAR PROGRAMMING
– MAXIMIZATION

Step 2: Determine the solution by identifying the extreme corners

Important Notes in Step 2

Shading Direction
If inequality is ≥ shading starts from the linear inequality going upwards
If inequality is ≤ shading starts from the linear inequality going downward

Non – negativity constraint

Notice that we are only looking at the first quadrant of the cartesian plane (where
both x and y coordinates are positive). This is to comply with the non-negativity constraint
X, Y ≥ 0 suggesting that the optimal solution for both X and Y should be positive values only.

Feasible Region
The feasble region is the area in the cartesian plane where the shaded region of both
constraints meet.

Course Module – BSBI524 Quantitative Method By: MPDoblas

Extreme Corners
The corner points within and on the boundary of the feasible region are the possible
optimal solution for both X and Y. In this example, we have four corner points labled 1,2,3,
and 4. These can be considered as a vertexe. Note that it is easy to spot the X and Y values of
the vertexes lying within the axes (1 and 3).

Vertex/Corner Coordinate (X,Y)

1 (0,80)
3 (50,0)
4 (0,0)
2 ?

It is howvever, relatively difficult to eyeball the coordinates for vertex 2. Thus, to be

sure, we can algebraicly derrive the value of X and Y for vertex 2 using either the process of
subsititution or eliminination. Both method will result to the same value. Nontheless, we will
illustrate both methods for your convenience.

Solving for X and Y Using Elimination

Eq. 1 4X + 3Y = 240
Eq. 2 2X + Y = 100 (the goals is to eliminate either X or Y by way of subtraction)

To do so, we multiply Eq.2 by 2 on both sides so we can cancel X

4X + 3Y = 240
(2) 2X + Y = 100 (2)

thus;
4X + 3Y = 240
4X + 2Y = 200
Y = 40
Substitute the derived value of Y in either eq.1 or eq.2. Arbitrarily, we will use Eq.2, thus;

2X + Y = 100
2X + 40 = 100
2X = 100 – 40
2X = 60
2
X = 30

Thus for vertex 4, the coordinates are (30, 40).

 BSBI524 QUANTITATIVE METHODS 13
Module 3. MODELING WITH LINEAR PROGRAMMING
– MAXIMIZATION

Solving for X and Y Using Substitution

Eq. 1 4X + 3Y = 240
Eq. 2 2X + Y = 100

The method requires to assume isolate either X or Y using either equation 1 or 2. For
example, using eq.2 we derive the initial value of Y as;

2X + Y = 100
Y = 100 – 2X

Substitute the derived value of Y in Eq.1;

4X + 3Y = 240
4X + 3(100 – 2X) = 240
4X + 300 – 6X = 240
4X – 6 X = 240 -300 (combining like terms)
- 2X = - 60
-2
X = 30

Substitute the derived value of X in either Eq.1 or Eq.2. Arbitrarily we will use Eq.2;

2X + Y = 100
2(30)+ Y = 100
60 + Y = 100 (combining like terms)
Y = 100 – 60
Y = 40

Notice again that we derive the same values of X and Y for Vertex 2. Thus, we can
complete the table of coordinates.

Vertex/Corner Coordinate (X,Y)

1 (0,80)
3 (50,0)
4 (0,0)
2 (30,40)

Course Module – BSBI524 Quantitative Method By: MPDoblas

Step 3. Use the objective function to find the optimal solution
The final step in the solution stage is to find the optimal solution using the
determined objective function. Recall that Hamad Furniture Company’s objective function
was;

Maximize 70 X + 50 Y

We will use this objective function to check which of the corner points or vertexes
provide the optimal solution.

Vertex/Corner Coordinate (X,Y) Plugging the X and Y values to Profit (Output)

70X + 50Y
1 (0,80) 70(0) + 50(80) 4,000
3 (50,0) 70(50) + 50(0) 3,500
4 (0,0) 70(0) + 50(0) 0
2 (30,40) 70(30) + 50(40) 4,100

Considering that the model’s objective is to maximize profit (output), the vertex that
results to the maximum value of output is the optimal solution. Thus, looking at the table, the
highest output is obtained if using vertex 2 where X = 30 and Y = 40. Relating the result to
Hamad Furniture Company’s profit objective, they are best of if they produce 30 units of
tables (X) and 40 units of chairs (Y). By doing so, they can maximize profit given the
parameters and the production constraints.

Stage 3: Sensitivity analysis

Optimal solutions to LP problems have thus far been found under what are called
deterministic assumptions. This means that we assume complete certainty in the data and
relationships of a problem—namely, prices are fixed, resources known, time needed to
produce a unit exactly set.
But in the real world, conditions are dynamic and changing. How can we handle this
apparent discrepancy? One way we can do so is by continuing to treat each particular LP
problem as a deterministic situation. However, when an optimal solution is found, we
 BSBI524 QUANTITATIVE METHODS 15
Module 3. MODELING WITH LINEAR PROGRAMMING
– MAXIMIZATION

recognize the importance of seeing just how sensitive that solution is to model assumptions
and data. For example, if a firm realizes that profit per unit is not $5 as estimated but instead
is closer to $5.50, how will the final solution mix and total profit change? If additional
resources, such as 10 labor hours or 3 hours of machine time, should become available, will
this change the problem’s answer?
Such analyses are used to examine the effects of changes in three areas: (1)
contribution rates for each variable, (2) technological coefficients (the numbers in the
constraint equations), and (3) available resources (the right-hand-side quantities in each
constraint). This task is alternatively called sensitivity analysis, post optimality analysis,
parametric programming, or optimality analysis.

Formative Assessment 3
Direction: In each of the items below, provide the details/data required

1. The Qufool Electro Corporation manufactures two electrical products: air

conditioners and large fans. The assembly process for each is similar in that both
require a certain amount of wiring and drilling. Each air conditioner takes 3 hours of
wiring and 2 hours of drilling.
Each fan must go through 2 hours of wiring and 1 hour of drilling. During the next
production period, 240 hours of wiring time are available and up to 140 hours of
drilling time may be used. Each air conditioner sold yields a profit of BD 25. Each fan
assembled may be sold for a BD 15 profit.
Requirements;

C2. Define and identify appropriate quantitative tools and techniques in solving business
related problems

a) Define the problem by identifying the controllable and uncontrollable values (1 mark
each correct value)

Course Module – BSBI524 Quantitative Method By: MPDoblas

 C4. Solve problems using appropriate quantitative tools and techniques related to business
situations

b) Formulate the appropriate quantitative model for the problem (5 marks)

5 pts Complete components of the graph/mathematical model
4 pts graph/mathematical model lacks minor details/component
3 pts The graph/mathematical model lacks moderate number of components
2 pts The graph/mathematical model lacks major number of components
1 pt Only 1 component of the graph/mathematical model is appropriately identified

C6. Conduct linear programming and decision analysis and critically evaluate inferences
on applied quantitative models

c) Evaluate the model to identify the optimal solution for the given problem. (5 marks)
5 pts the explanations is correct and is done clearly with supporting calculations.
4 pts the explanation is correct but lacks calculations
3 pts the explanation is correct but not properly discussed
2 pts the explanation is poorly discussed and computations are not complete
1 pt Wrong explanation

2. The Reem Furniture Corporation manufactures two products, benches and picnic
tables, for use in yards and parks. The firm has two main resources: its carpenters
(labor force) and a supply of redwood for use in the furniture. During the next
production cycle, 1,200 hours of labor are available under a union agreement. The
firm also has a stock of 3,500 feet of good-quality redwood. Each bench that Outdoor
Furniture produces requires 4 labor hours and 10 feet of redwood; each picnic table
takes 6 labor hours and 35 feet of redwood. Completed benches will yield a profit of
BD 9 each, and tables will result in a profit of BD 20 each.

Requirements;

C2. Define and identify appropriate quantitative tools and techniques in solving business
related problems
 BSBI524 QUANTITATIVE METHODS 17
Module 3. MODELING WITH LINEAR PROGRAMMING
– MAXIMIZATION

a) Define the problem by identifying the controllable and uncontrollable values (1 mark
each correct value)

C4. Solve problems using appropriate quantitative tools and techniques related to business
situations

b) Formulate the appropriate quantitative model for the problem (5 marks)

5 pts Complete components of the graph/mathematical model
4 pts graph/mathematical model lacks minor details/component
3 pts The graph/mathematical model lacks moderate number of components
2 pts The graph/mathematical model lacks major number of components
1 pt Only 1 component of the graph/mathematical model is appropriately identified

C6. Conduct linear programming and decision analysis and critically evaluate inferences
on applied quantitative models

c) Evaluate the model to identify the optimal solution for the given problem. (5 marks)
5 pts the explanations is correct and is done clearly with supporting calculations.
4 pts the explanation is correct but lacks calculations
3 pts the explanation is correct but not properly discussed
2 pts the explanation is poorly discussed and computations are not complete
1 pt Wrong explanation

Course Module – BSBI524 Quantitative Method By: MPDoblas

References and Supplementary Materials
Books and Journals
1. Render, B., Stair Jr, R. M., & Hanna, M. E. (2012). Quantitative Analysis for
Management (11th Ed.)
2. Waters, D., & Waters, C. D. J. (2017). Quantitative methods for business. Pearson
Education.
3. Wisniewski, M. (2010). Quantitative Methods for Decision Makers with Mathxl.
Pearson Education.

Online Supplementary Reading Materials

1. https://storm.cis.fordham.edu/~zhang/cs5835/slides/LinearProgramming_handout
.pdf
Online Instructional Videos
1. https://www.youtube.com/watch?v=6B-ldjR-WsY