QUANTITATIVE

TECHNIQUES (QUAN 1202)

Lecture 3
Linear Programming Modeling

September 2009
 Learning Objectives
You should be able to identify or define:
 Understand the basic assumptions and properties
of Linear Programming (LP).
 Graphically solve any LP problem that has only
two variables by both the corner point and
isoprofit line methods.
 Understand special issues in LP such as
infeasibility, unboundedness, redundancy and
alternative optimal solutions.
 Understand the role of sensitivity analysis.
 Introduction
• In decision-making, model formulation is important
because it represents the essence of business decision
problem.

• Linear Programming (LP) is a particular type of

technique used for economic allocation of 'scarce' or
'limited' resources (resources that are not unlimited in
availability during the planning period), such as
labour, material, machine, time, warehouse space,
capital, energy, etc. to several competing activities,
such as products, services, jobs, new equipment,
projects, etc. on the basis of a given criterion of
optimality.
 Introduction
• Linear programming is the most used technique
of decision-making in business.
• Its purpose is to assist decision makers in the
allocation of scare resources, i.e., a technique
that seeks to solve resource allocation problems
using the proportional relationships between
two variables.
• Here decisions are made under certainty, i.e.,
information on available resources and
relationship between variables are known .
 Allocating Resources
• Types of Resources
– The assets of the organisation
• Financial: debt, equity, and retained earnings
• Physical: buildings, equipment, and raw materials
• Human: experiences, skills, knowledge, and
competencies
• Intangible: brand names, patents, reputation,
trademarks, copyrights, and databases
• Structural/cultural: history, culture, work
systems, working relationships, trust, and policies
 Requirements of LP problem
 Must seek to maximise or minimise some quantity (the
objective function), usually the profit or cost.
 Presence of restrictions or constraints – that limit the
degree to which we can pursue our objective.
 There must be alternative courses of action from which
to choose. For ex: if a company produces three different
products, management may use LP to decide how to
allocate among them its limited production resources (of
personnel, machinery and so on). Should it devote all
manufacturing capacity to make only the first product,
should it produce equal amounts of each product or
should it allocate the resources in some ratio?
 Objectives and constraints must be expressible as linear
equations or inequalities (2A + 5B = 10)
 Basic assumptions of LP
• Certainty: It is assumed, that all model
parameters such as availability of resources,
profit (or cost) contribution of a unit of decision
variable and consumption of resources by a unit
of decision variable must be known and is
constant and do not change during the period
being studied.
• Divisibility: The solution values of decision
variables and resources are assumed to have
either whole numbers (integers) or mixed
numbers (integer and fractional).
• Additivity: Meaning that the total of all activities
equals the sum of the individual activities. For
example, the total profit earned by the sale of two
products A and B must be equal to the sum of the
profits earned separately from A and B.
Similarly, the amount of a resource consumed by
A and B must be equal to the sum of resources
used for A and B individually.
• Non-negative: Negative values of physical
quantities are impossible; you simply cannot
produce a negative number of chairs, shirts,
lamps or computers.
• Linearity (or proportionality): All
relationships in the LP model (i.e. in both
objective function and constraints) must be
linear. In other words, for any decision variable j,
the amount of particular resource say i used and
its contribution to the cost one in objective
function must be proportional to its amount. For
example, if production of one unit of a product
uses 5 hours of a particular resource, then
making 3 units of that product uses 3 x 5 = 15
hours of that resource.
 Formulating LP problems

1. What are the decision variables?

2. What is the objective?
3. What are the constraints?
4. Mathematical formulation.
5. Solve the LP problem graphically.
 Structure of LP
General Structure of LP Model consists of 3 components:
i. Decision variables (activities): We need to evaluate
various alternatives (courses of action) for arriving at
the optimal value of objective function. The
evaluation of various alternatives is guided by the
nature of objective function and availability of
resources. For this, we pursue certain activities
usually denoted by x1, x2, ……xn. For example, in a
product-mix manufacturing, the management may use
LP to decide how many units of each of the product
to manufacture by using its limited resources such as
personnel, machinery, money, material, etc.
All decision variables are continuous, controllable
and non-negative. That is, x1>0, x2>0, ....xn>0.
ii. The objective function: The objective function
of each LP problem is a mathematical
representation of the objective in terms of a
measurable quantity such as profit, cost,
revenue, distance, etc. In its general form, it is
represented as:
Optimise (Maximise or Minimise) Z = c1x1 +
c2x2. … cnxn where Z is the measure-of-
performance variable, which is a function of x1,
x2 ..., xn. Quantities c1, c2…cn are parameters
that represent the contribution of a unit of the
respective variable x1, x2 ..., xn to the measure-
of-performance Z.
iii. The constraints: There are always certain
limitations (or constraints) on the use of
resources, e.g. labour, machine, raw material,
space, money, etc. that limit the degree to which
objective can be achieved. Such constraints must
be expressed as linear equalities or inequalities in
terms of decision variables. The solution of an LP
model must satisfy these constraints.
A furniture 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 labour hours in the painting and
varnishing department. Each table takes 4 hours of
carpentry and 2 hours in the painting and varnishing. Each
chair requires 3 hours in carpentry and 1 hour in painting
and varnishing. During the current production period, 240
hours of carpentry time and 6,000 minutes in painting and
varnishing time are available. Each table sold yields a
profit of Rs 7; each chair produced is sold for a Rs 5 profit.
The company’s problem is to determine the best possible
combination of tables and chairs to manufacture in order to
yield the maximum profit. The company would like this
production mix situation be formulated as a LP problem.
 Formulation of LP problem

Suppose a farmer has 10 acres of land and a capital

of Rs.20,000. It costs Rs.1,400 to sow one acre of
wheat and Rs.1,000 to sow one acre of rice. The
farmer wants to know the optimal number of acres
to use to sow rice or wheat to maximise profits.
And suppose that the farmer’s profit is Rs. 800 per
acre on wheat and Rs.550 per acre on rice.
Question 1
A company sells two different products A and B. The
company makes a profit of Rs.40 and Rs.30 per unit on
products A and B respectively. The two products are
produced in a common production process and are sold in
two different markets. The production process has a total
capacity of 30,000 hours of labour. It takes three hours to
produce a unit of A and one hour to produce a unit of B.
The market has been surveyed and company officials feel
that the maximum number of units of A that can be sold is
8,000 units and that of B is 12,000 units respectively.
Subject to these limitations, products can be sold in any
combinations.
Formulate the above problem as a LP model and calculate
the profit of the company.
 1.0 Graphical Solution Method
LP problem can be easily solved graphically when it
involves only two decision variables.
1. Define the problem mathematically.
2. Graph the constraints, treat each inequality as
though it was an equality.
3. Identify the feasible region.
4. Find the corner points on the feasible solution.
5. Evaluate the corner points and select the one that
satisfies the objective function.
Question 2
A company is manufacturing two products A and B.
Production is limited to 80 units of product A and 60 units of
product B due to limited supply of raw materials. Production of
each of these products requires 5 units and 6 units of electronic
components respectively. The Electronic components are
supplied by another manufacturer and the supply is limited to
600 units/day. The company has 160 employees and the
production of one unit of product A requires 1 man-day of
labour and one unit of product B requires 2 man-day of labour.
Each unit of these products is sold in the market at a profit of
Rs.50 and Rs.80 respectively.
Determine how many units of each product the company
should produce to maximise profit.
• Both optimal solutions occurred at "corners"
of the feasible region. These vertices are
called extreme points.
• The optimal solution to a linear
programming problem is always found at an
extreme point of the feasible region.
• Therefore, we need only evaluate extreme
points and select the one that maximises the
objective function.
 Advantages of LP
• Helps in attaining the optimum use of productive
resources.
• Improve the quality of decisions.
• Provide possible and practical solutions since there
might be other constraints operating outside the
problem which must be taken into account.
• Highlighting of bottlenecks in the production
processes is the most significant advantage of this
technique.
• Helps in re-evaluation of a basic plan for changing
conditions.
 Limitations of LP
• While solving an LP model, there is no
guarantee that we will get integer valued
solutions.
• Linear programming model does not take into
consideration the effect of time and uncertainty.
• Sometimes large-scale problems can be solved
with linear programming techniques even when
assistance of computer is available.
• Parameters appearing in the model are assumed
to be constant but in real-life situations, they are
frequently neither known nor constant.
 2.0 Isoprofit Line Solution Method
• The optimal is the point lying in the feasible region that
produces the highest profit.
• There are a few approaches that can be taken in solving
for the optimal solution when the feasible region has
been established and one of the speediest one to apply is
called the isoprofit line method.
• The technique is that you set the profits equal some
arbitrary but small amount. For the furniture company,
we can choose a profit of Rs 210. This is a profit level
that can be obtained easily without violating either of the
two constraints. The objective function can be written as
Rs 210 = 7X1 + 5X2.
• The expression is just the equation of a line; an
isoprofit line.
• Represents all combinations of (X1,X2) that
would yield a total profit of Rs 210.
• Plot the profit line (let X1 = 0 and solve for X2
and let X2 = 0 and solve for X1).
• All points on the line represent feasible solutions
that produce a profit of Rs 210.
• Draw a series of parallel isoprofit lines until you
find the highest isoprofit line, that is, the one with
the optimal solution (the one that touches the tip
of the feasible region at the corner point (X 1 = 30
and X2 = 40) and yields a profit of Rs 410.
 3.0 Corner Point Solution Method
• This technique is simpler conceptually than the
isoprofit line approach.
• Involves looking at the profit at every corner point of
the feasible region.
• The mathematical theory behind LP states that an
optimal solution to any problem (that is, the values of
X1 and X2 that yield the maximum profit) will lie at a
corner point, or extreme point, of the feasible region.
• It is necessary to find the values of the variables at
each corner; the maximum profit or optimal solution
will lie at one (or more) of them.
 Application of LP
Linear programming is the most widely used technique of
decision-making in business and industry and in various other
fields. For example
• Agricultural Applications: Linear programming can be
applied in agricultural planning, e.g. allocation of limited
resources such as acreage, labour, water supply and working
capital, etc. in a way so as to maximise net revenue.
• Military Applications: Military applications include the
problem of selecting an air weapon system against enemy so as
to keep them pinned down and at the same time minimising the
amount of aviation gasoline used.
• Production Management: (Product mix) A company can
produce several different products, each of which requires the
use of limited production resources. In such cases, it is essential
to determine the quantity of each product to be produced
knowing its marginal contribution and amount of available
resource used by it. The objective is to maximise the total
contribution, subject to all constraints.
• Financial Management: (Portfolio selection) This
deals with the selection of specific investment activity
among several other activities. The objective is to find
the allocation which maximises the total expected return
or minimises risk under certain limitations.
• Marketing Management: (Media selection) Linear
programming technique helps in determining the
advertising media mix so as to maximise the effective
exposure, subject to limitation of budget, specified
exposure rates to different market segments, specified
minimum and maximum number of advertisements in
various media.
• Personnel Management: (Staffing problem) Linear
programming is used to allocate optimum manpower to
a particular job so as to minimise the total overtime cost
or total manpower.
Question 3
A manufacturing firm produces two products, A and B.
Each of these products must be processed through two
different machines. One machine has 24 hours of available
capacity and the second has 16 hours. Each unit of product
A requires two hours of time on both machines. Each unit
of product B requires three hours of time on the first
machine and one hour on the second machine. The
incremental profit is Rs. 6 per unit of product A and Rs. 7
per unit of product B, and the firm can sell as many units of
each product as it can manufacture. The objective of the
firm is to maximise profits. The problem is to determine
how many units of product A and product B should be
produced within the limits of available machine capacities.