Ch 11

Linear programming

1- The Business Problem: Assume a company manufactures a liquid detergent. The detergent is manufactured from 2 different mixes: (A and B). The detergent is packaged and sold to two separate markets: (Household and Commercial). Both are sold in 5 liters bottles. Product H: 4 liters of mix A + 1 liter of mix B Product C: 2 liters of mix A + 3 liters of mix B Mix A /week: 20,000 liters Mix B /week: 15,000 liters H Containers/ week: 4000 C Containers/ week: 4500 H profit: 0.30 $ /container C profit: 0.25 $ /container Product H Mix A Mix B 4 1 Product C 2 3

As noticed from the given above, it will most profitable to only produce product H. However, we are limited with the number of containers for product H, in addition that product H requires 4 liters of mix A, which means we will be quickly depleted from mix A and left with lots of mix B. Optimizing the solution requires solving this problem using constrained optimization.

Formulating the problem: Constraints: Mix A: 20,000 liters Mix B: 15,000 liters H containers: 4000 C containers: 4500 Let us represent with equations these constraints: Consider the first constraint: mix A = 20,000 liters. This supply of mix A will be used to produce an m quantity of H and an n quantity of C. Thus the equation must be: mH + nC =< 20,000 Each unit of H requires 4 units of mix A, and each unit of C requires 2 units of mix A. m = 4 and n = 2 4H + 2C =< 20,000 For example, if we decide to produce 1000 H and 500 C we will require: 4000 + 1000 = 5000 liters of mix A. Consider the second constraint: mix B = 15,000 liters. This supply of mix B will be used to produce an m quantity of H and an n quantity of C. Thus the equation must be: mH + nC =< 15,000 Each unit of H requires 1 units of mix B, and each unit of C requires 3 units of mix B. m = 1 and n = 3 1H + 3C =< 15,000 For example, if we decide to produce 1000 H and 500 C we will require: 1000 + 1500 = 2500 liters of mix B. Container Constraints: 1H =< 4000 (containers for H) 1C =< 4500 (containers for C)

The objective Function: Profit = 0.3 H + 0.25 C The complete formulation: Maximize 0.3 H + 0.25 C Subjected to: 4H + 2C =<20,000 1H + 3C =< 15,000 1H =< 4,000 1C =< 4,500 H, C >= 0 Graphical Solution: The stages of the graphical solution: 1- Graph the constraints 2- Graph the objective function 3- Determine the solution visually 4- Determine the solution algebraically Graph the constraints: Constraint 1: 4H + 2 C =<20,000 Solving for this equation: If H = 0 C = 20,000 / 2 = 10,000 If C = 0 H = 20,000 /4 = 5,000
12000 10000 8000 6000 4000 2000 0 0 2000 H 4000 6000
Feasible

Feasible Area for 1st Constraint

Constraint 2: 1H + 3C =< 15,000 For H = 0 C = 15,000/3 = 5,000 For C = 0 H = 15,000/1 = 15,000

6000 5000 4000 3000 2000 1000 0 0 5000 10000 H 15000 20000
Feasible

Feasible Area for 2nd Constraint

Constraint 3: H = 4000
Feasible Area for 3rd Constraint 12000 10000 8000 6000 4000 2000 0 0 2000 H 4000 6000 C
Feasible

Feasible Area for 3rd Cons traint

Constraint 4: C = 4500
5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 0

Feasible

Feasible Area for 4th Constraint

5000

10000

15000

20000

Merging: 12000 10000 8000 6000 4000 2000 0 0 5000 10000 15000 20000
Feasible

1 2 3 4

Graph the objective function: To graph the objective function we need to give an arbitrary result for this function at first. A way to do that would be to start with a value that is the fucntion of product of the 2 profit margins for product H and product C. 0.3H + 0.25C = P 0.3* 0.25 * 1000 = 750 So, let us assume P = 750 If P = 750 and H = 0 C = 3000 If P = 750 and C = 0 H = 2500 This is the line we will plot on our graph. 12000 10000 8000 6000 4000 2000 0 0 5000 10000 H 15000 20000 C 1 2 3 4 P750 P1000 P1500

The arrow on the graph shows the point where the profit line parallel to the drawn profits would intersect the feasible area. This will be the optimal solution or profit Therefore, we will tend to keep on increasing th3 profit until intersect with a tangent the feasible area. We will then determine the H and C on the graph for this optimal profit solution.

To solve this problem arithmetically: 4H + 2C = 20000 1H + 3C = 15000 Solve for these 2 equations: H = 3000 and C = 4000 Profit = 0.3(3000) + 0.25(4000) = 1900 Binding and Non binding constraints: 4H + 2C = 4(3000) + 2(4000) = 20000 use all mix A 1H + 3C = 1(3000) + (3(4000) = 15000 use all mix B These 2 are labeled binding constraints since they are all being used, and any increase in production requires more of at least one of the 2 products. H containers: 3000 < 4000 left with 1000 non-used containers C containers: 4000 < 4500 left with 500 non-used containers These 2 are labeled non-binding constraints since they were not all used in production. Exercise: What if we were limited with only 2000 H containers? Now, this constraint will become binding since with all other quantities kept equal, we could produce 3000 H, and now we are bound with only 2000. The feasible area will become: 12000 10000 8000 6000 4000 2000 0 0 5000 10000 15000 20000 1 2 3 4

Arithmetically: When H = 2000 4H + 2C = 20000 C = 6000 >4500 cannot have C= 6000 When H = 2000 1H + 3C = 15000 C = 4333 < 4500 can have C = 4333 (graph solution) Now: 4H + 2C = 4(2000) + 2(4333.33) = 16666 < 20000 we are left with 3334 l of mix A; Non Binding 1H + 3C = 1(2000) + 3(4333.33) = 15000 No mix B is left; Binding 2000 H containers used from 2000 provided. No H containers left. Binding 4333 C containers used from 4500 provided. We are left with 167 C containers> Non Binding

Sensitivity Analysis: What would happen if we changed one the constraints? Eg: Increase mix A or mix B We could recalculate the problem (time-consuming) or undertake a sensitivity analysis Constraints: The binding constraints: Mix A and Mix B Question 1: Would it be worth increasing mix A supplies? Answer: YES. Question 2: How much would extra supplies of Mix A be worth? Answer: Need to solve Solution: Assume we increase Mix A by 1 liter Mix A = 20001 4H + 2C =< 20001 1H + 3C =< 15000 Solving for the equations above we get: C= 3999.9 and H = 3000.3 Plug into the objective equation: 0.3(3000.3) + 0.25(3999.9) = 1900.65 Therefore for every 1-liter increase of Mix A our profit raises by 0.65. This is called the marginal value, opportunity cost or shadow price.

By how much can we increase our mix A before another constraint stops the production. H containers = 4000 When H = 4000 C = 3666 Mix A = 4H + 2C = 23332 liters increase by 3332 liters maximum.