QMT425 – Quantitative Business Analysis

Topic 3 :
Linear Programming
3.1 INTRODUCTION

What is Linear Programming (LP)

• The main issue of many managers and decision makers of company are to find the optimal
solution to a problem that requires decision about how best to use a set of limited
resources to achieve a state goal of objective.

• Objectives of the business decision frequently involve maximizing profit or minimizing

costs.

• Resources typically include labor, money, time and raw materials.

• LP is a technique to help managers in planning and decision making relative to resource

allocation.

• LP is a model consisting of linear relationships representing a firm’s decisions given an

objective and resource constraints.

3.2 REQUIREMENTS OF A LP PROBLEM

1) One objective function - maximize or minimize objective

• The major objective of a typical manufacturer is to maximize profit.
• The major objective of trucking or railroad distribution system might be to minimize
shipping costs.

2) One or more constraints

• For example, deciding how many units of each product to product is restricted by
available personnel and machinery.

3) Alternative courses of action

• For example, if a company produce 3 different products, management may use LP
to decide how to allocate among them its limited production resources.

4) Objective function and constraints are linear.

• Linear just mean that all terms used in the objective function and constraints are
of the first degree.

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3.3 LP MODEL COMPONENTS

• Decision variables: mathematical symbols representing levels of activity of a firm.

• Objective function: a linear mathematical relationship describing an objective of the firm,

in terms of decision variables, that is maximized or minimized

• Constraints: restrictions placed on the firm by the operating environment stated in linear
relationships of the decision variables.

• Parameters: numerical coefficients and constants used in the objective function and
constraint equations.

In QMT 425, you will learn:

 How to formulate the LP Model (Maximization & Minization Model)

 Solve the LP Model (Maximization & Minization Model)

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3.4 STEPS IN FORMULATING THE LP MODEL

1. Identify the objective and the constraints.

2. Clearly define the decision variables.

3. Construct the objective function.

4. Formulate the constraints.

Example 3.1 (Maximization Model)

The Beaver Creek Pottery Company is a small crafts company. The company employs skilled
artisans to produce clay bowls and mugs. The two primary resources used by the company are
special pottery clay and skilled labor. Given these limited resources the company desires to know
how many bowls and mugs to produce each day in order to maximize profit.

The two products have the following resource requirements for production and profit per item
produced.

Resource Requirements
Labor Clay Profit
Product (hr/ unit) (lb/ unit) (RM/ unit)

Bowl 1 4 40
Mug 2 3 50

There are 40 hours of labor and 120 pounds of clay available each day for production.

Resource Requirements
Labor Clay Profit
Product (hr/ unit) (lb/ unit) (RM/ unit)

Bowl 1 4 40
Mug 2 3 50
Available 40 120

Decision Variables:

x1= number of bowls to produce/day

x2= number of mugs to produce/day

Objective function

Maximize Z = 40x1 + 50x2

where Z= profit per day

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Resource Constraints:

x1 + 2x2  40 hours of labor

4x1 + 3x2  120 pounds of clay

Non-negativity Constraints:
x1  0; x2  0

Therefore, Complete Linear Programming Model

x1= number of bowls to produce/day

x2= number of mugs to produce/day

Maximize Z = 40x1 + 50x2

subject to

x1 + 2x2  40
4x1 + 3x2  120
x1 , x2  0

Example 3.2 (Minimization Model)

A farmer is preparing to plant a crop and needs to fertilize a field. There are two brands of fertilizer
to choose from. Super-gro and Crop-quick. Each brand yields a specific amount of nitrogen and
phosphate, as follows:

Chemical contribution
Brand Nitrogen Phosphate
(lb/ bag) (lb/ bag)
Super-gro 2 4
Crop-quick 4 3

The farmer’s requires at least 16 pounds of nitrogen and 24 pounds of phosphate. Super-gro
costs RM6 per bag and Crop-quick costs RM3. The farmer wants to know how many bags of each
brand to purchase in order to minimize the total cost of fertilizing.

Chemical contribution
Brand Nitrogen Phosphate Cost
(lb/ bag) (lb/ bag) (RM/ bag)
Super-gro 2 4 6
Crop-quick 4 3 3
Requires at least 16 24

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Decision variables

x1 = number bags of Super-gro

x2 = number bags of Crop-quick

Objective function

Minimize Z = 6x1 + 3x2

where 6x1 = cost of bags of Super-gro
3x2 = cost of bags of Crop-quick

Model constraints

2x1 + 4x2  16 lb (nitrogen constraint)

4x1 + 3x2  24 lb (phosphate constraint)
x1, x2  0 (non-negativity constraint)

Therefore, Complete Linear Programming Model

x1= number bags of Super-gro

x2= number bags of Crop-quick

Minimize Z = 6x1 + 3x2

subject to

2x1 + 4x2  16
4x1 + 3x2  24
x1, x2  0

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Exercise 3.1

The Flair Furniture Company produces inexpensive tables and chairs. 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 RM7, each chair produced is sold for a RM5 profit. Formulate LP model
to determine the best possible combination of tables and chairs to manufacture in order to reach
the maximum profit.

Exercise 3.2

The Kalo Fertilizer Company makes a fertilizer using two chemicals that provide nitrogen,
phosphate and potassium. A pound of ingredient 1 contributes 10 ounces of nitrogen and 6
ounces of phosphate, while a pound of ingredient 2 contributes 2 ounces of nitrogen, 6 ounces of
phosphate and 1 ounce of potassium. Ingredient 1 costs RM3 per pound and ingredient 2 costs
RM5 per pound. The company wants to know how many pounds of each chemical ingredient to
put into a bag of fertilizer to meet minimum requirements of 20 ounces of nitrogen, 36 ounces of
phosphate and 2 ounces of potassium. Formulate LP model in order to minimize cost.

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Solve LP Model by using the following method:

Graphical Method Simplex Method

3.5 GRAPHICAL METHOD

• Graphical solution is limited to LP problems with only two decision variables.

• Graphical methods provide visualization of how a solution for a linear programming

problem is obtained.

3.5.1 Steps in Graphical Method

a) Plot constraints on the graph. Convert inequality into equation.

b) Shade the feasible solution area. The feasible region is the overlapping area of problem’s
constraints. The shaded region represents the area of solution.

c) Find the optimal solution to the problem. There are 2 approaches that can be taken either:
i) Isoprofit/ Isocost line solution method or
ii) Corner point solution method

Example 3.3 (Maximization model)

From example 3.1, how many bowls (x1) and mugs (x2) to produce daily, given limited amounts
of labor and clay.

Maximize Z = 40x1 + 50x2

subject to

x1 + 2x2  40
4x1 + 3x2  120
x1 , x2  0

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Solution

Step 1: Plot the constraints on the graph.

x1 + 2x2 = 40 4x1 + 3x2 = 120

x1 = 0, x2 = 20 x1 = 0, x2 = 40
x2 = 0 , x1 = 40 x2 = 0 , x1 = 30

Step 2 : Shaded the feasible region

Shade the feasible solution area (area on the graph bounded by the constraint equation).

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Step 3: Find the optimal solution : Use Isoprofit solution method or corner point solution method.

1. Isoprofit solution method

Let Z = 800
800 = 40x1 + 50x2
x1 = 0, x2 = 16
x2 = 0 , x1 = 20

Optimal solution:

x1 = 24
x2 = 8
Z = 40 (24) + 50 (8) = RM1360 (highest profit)

Conclusion : The company should produce 24 units of bowls and 8 units of mugs to maximize
the profit. The maximum profit is RM1360.

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2. Corner point solution method

D C

Find the coordinates of each corner point

Point A (x1 = 0, x2 = 20)

Point C (x1 = 30, x2 = 0)
Point D (x1 = 0, x2 = 0)

Apply the simultaneous equations method to solve the corner point B, we obtain :
Point B (x1 = 24, x2 = 8)

Test the profit level at each corner point : Pick the highest profit

Corner Point Z = 40x1 + 50x2

A (0,20) Z = 40(0) + 50(20) = 1000
B (24,8) Z = 40(24) + 50(8) = 1360 *
C (30,0) Z = 40(30) + 50(0) = 1200
D (0,0) Z = 40(0) + 50(0) = 0

Optimal solution

x1 = 24
x2 = 8
Z = RM1360 (highest profit)

Conclusion : The company should produce 24 units of bowls and 8 units of mugs to maximize
the profit. The maximum profit is RM1360.

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Example 3.4 (Minimization model)

From example 3.2, how many bags of Super-gro (x1) and Crop-quick (x2) to purchase in order to
minimize the total cost of fertilizing.

Minimize Z = 6x1 + 3x2

subject to

2x1 + 4x2  16
4x1 + 3x2  24
x1, x2  0

Solution

Step 1: Plot the constraints on the graph.

2x1 + 4x2 = 16
x1 = 0, x2 = 4
x2 = 0 , x1 = 8

4x1 + 3x2 = 24
x1 = 0, x2 = 8
x2 = 0 , x1 = 6

Step 2 : Shaded the feasible region

Shade the feasible solution area (area on the graph bounded by the constraint equation).

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Step 3: Find the optimal solution : Use Isocost solution method or corner point solution method.

i) Isocost solution method

Let Z = 18
18 = 6x1 + 3x2
x1 = 0, x2 = 6
x2 = 0 , x1 = 3

Optimal solution
x1 = 0
x2 = 8
Z = 6(0) + 3(8) = RM24 (lowest cost)

Conclusion : The company should not purchase Super –pro and purchase 8 bags of Crop-quick
to minimize the total cost. The minimum total cost should be RM24.

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ii) Corner point solution method

Find the coordinates of each corner point

Point A (x1 = 0, x2 = 8)
Point C (x1 = 8, x2 = 0)

Apply the simultaneous equations method to solve the corner point B, we obtain :
Point B (x1 = 4.8, x2 = 1.6)

Test the cost level at each corner point : Pick the lowest cost

Corner Point Z = 6x1 + 3x2

A (0,8) Z = 6(0) + 3(8) = 24*
B (4.8,1.6) Z = 6(4.8) + 3(1.6) = 33.6
C (8,0) Z = 6(8) + 3(0) = 48

Optimal solution

x1 = 0
x2 = 8
Z = RM24

Conclusion : The company should not purchase Super –pro and purchase 8 bags of Crop-quick
to minimize the total cost. The minimum total cost should be RM24.

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Exercise 3.3

Solve the following linear programming problem using the graphical method.

Maximize Profit 3x + 5y
subject to
4x + 3y  48
x + 2y  20
x, y  0

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Exercise 3.4

Use the graphical method to solve the following linear programming model.

Minimize Cost 8x + 6y
subject to
3x + 2y  18
x + y  5
y  6
x, y  0

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3.6 SIMPLEX METHOD

3.6.1 Standard Form LP Model (To handle  ,  and = constraints)

 In graphical solution, the model constraints are considered as equations (=), rather than  or
 inequalities.
 There is a standard procedure for transforming inequality constraints into equations.
 The complete LP model with slack variables referred as standard form LP model.

a) Slack variables

A slack variable is added to a  constraint to convert it to an equation (=).

 Slack variable represents the amount of unused resources.

 Slack variable contribute nothing to the objective function value.

b) Surplus Variables

A surplus variable is subtracted from a  constraint to convert it to an equation (=).

 Surplus variable represents an excess above a constraint requirement level.

 Surplus variable contribute nothing to the objective function value.

c) Artificial Variables

 An artificial variable is a variable that has no physical meaning in terms of a real world LP
problem. It simply allows us to create a basic feasible solution to start the simplex algorithm.
An artificial variable is not allowed to appear in the final solution to the problem.

 Whenever an artificial or surplus variable is added to one of the constraints, it must also be
included in the other equations and in the objective function, just as what we have done for
slack variables.

 Each artificial variable is assigned an extremely high cost to ensure it does not appear in the
final solution.

Standard form of LP model

 To handle  constraint, slack variable is added.

 To handle  constraint, surplus variable is subtracted and then artificial variable is added.
 To convert an equality (=), we add an artificial variable to the equation.
 In the objective function, surplus and artificial variable must be included , just as we done for
slack variable and
Maximization model  put -MA to represent the artificial variable
Minimization model  put +MA to represent the artificial variable

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Example 3.5 (Maximization model)

From example 3.1, standard form for slack variables

Maximize Z = 40x1 + 50x2

subject to
x1 + 2x2  40 (labor)
4x1 + 3x2  120 (clay)
x1 , x2  0

Convert to standard form of LP model

Maximize Z = 40x1 + 50x2 + 0s1 + 0s2

subject to
x1 + 2x2 + s1 = 40 (labor)
4x1 + 3x2 + s2 = 120 (clay)

x1 , x2 , s1 , s2 0
Consider a hypothetical solution x1 = 5, x2 = 10. Substituting these values into the equation yields.

Profit: Z = 40(5) + 50(10) = 700

Constraint (labor): (5) + 2(10) + s1 = 40, then s1 = 15

Constraint (clay): 4(5) + 3(10) + s2 = 120, then s2 = 70

 In this example, x1 = 5 bowls, x2 = 10 mugs.

 s1 = 15 hours represents the amount of unused labor
 s2 = 70 lb represents the amount of unused clay

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3.6.2 Setting Up The First Simplex Tableau

1. Write the problem in standard form.

Consider the maximization problem:

Maximize Z = 40x1 + 50x2

subject to
x1 + 2x2  40
4x1 + 3x2  120
x1 , x2  0

In standard form, the problem written as:

Maximize Z = 40x1 + 50x2 + 0s1 + 0s2

subject to
x1 + 2x2 + s1 = 40
4x1 + 3x2 + s2 = 120
x1 , x2 , s1 , s2  0

2. Basic feasible solution.

All real variables are set equal to zero: x1 = 0 , x2 = 0

First simplex tableau:

Cj 40 50 0 0 Quantity
Solution mix x1 x2 s1 s2
0 s1 1 2 1 0 40
0 s2 4 3 0 1 120
Zj 0 0 0 0 0
Cj-Zj 40 50 0 0

Calculations for the values of Zj are as follows:

Z (for column x1) = 0(1) + 0(4) = 0

Z (for column x2) = 0(2) + 0(3) = 0
Z (for column s1) = 0(1) + 0(0) = 0
Z (for column x1) = 0(0) + 0(1) = 0

Cj 40 50 0 0
Zj 0 0 0 0
Cj-Zj 40 50 0 0

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Explanation about the values/variables inside the simplex tableau

 Variables in solution mix are referred as basic variables, in this example are s1 and s2.

 Variables not in the solution mix are called non-basic variables (x1 and x2).

 Cj : Profit contribution per unit of each variable.

 Zj : In the quantity column, provides total contribution.

The basic feasible solution:

x1 = 0
x2 = 0
s1 = 40
s2 = 120
Zj = 0

3.6.3 Simplex Solution Procedure (After Setting Up The First Simplex Tableau)

1. Determine which variable to enter into the next solution mix. Identify the column with the
largest positive number in the Cj-Zj row. The column identified is called the pivot column.
2. Determine which variable to replace. Divide each amount in the quantity column with
amount in pivot column. The row with the smallest nonnegative number will be replaced
in the next tableau. This row referred as pivot row.
3. Compute new values for the pivot row. Divide every number in the row by pivot number.
4. Compute new values for each remaining row. All remaining rows are calculated as follows:

New row Old row Its pivot column New pivot row
= - x
number number coefficient number number

5. Compute the Zj and Cj-Zj rows. If all numbers in the Cj-Zj row are zero or negative, we have
found the optimal solution.

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 QMT425 – Quantitative Business Analysis

Procedure 1 : Determine which variable to enter (pivot column).

Iteration 1
Cj Basic x1 x2 s1 s2 Quantity
variables 40 50 0 0
0 s1 1 2 1 0 40
0 s2 4 3 0 1 120
Zj 0 0 0 0 0
Cj-Zj 40 50 0 0

Procedure 2 : Determine which variable to replace (pivot row).

Iteration 1
Cj Basic x1 x2 s1 s2 Quantity
variables 40 50 0 0
0 s1 1 2 1 0 40/2=20
0 s2 4 3 0 1 120/3=40
Zj 0 0 0 0 0
Cj-Zj 40 50 0 0

Identify the pivot number (Pivot number = the number at the intersection of the pivot row and
pivot column) = 2

The variable to enter is X2

The variable to remove is s1

Procedure 3 : Compute new values for the pivot row.

Iteration 2
Cj Basic x1 x2 s1 s2 Quantity
variables 40 50 0 0
50 x2 1/2 1 1/2 0 40/20
0 s2 4 3 0 1 120
Zj 0 0 0 0 0
Cj-Zj 40 50 0 0

Procedure 4 : Compute new values for each remaining row.

Iteration 2
Cj Basic x1 x2 s1 s2 Quantity
variables 40 50 0 0
50 x2 1/2 1 1/2 0 20
0 s2 5/2 0 -3/2 1 60
Zj 0 0 0 0 0
Cj-Zj 40 50 0 0

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Procedure 5 : Compute the Zj and Cj-Zj rows

Cj Basic x1 x2 s1 s2 Quantity
variables 40 50 0 0
50 x2 1/2 1 1/2 0 20
0 s2 5/2 0 -3/2 1 60
Zj 25 50 25 0 1000
Cj-Zj 15 0 -25 0

* Since not all number in Cj-Zj row are 0 or negative, the second simplex tableau is not optimal,
and we must repeat the five simplex step.

The result after repeat all five steps:

Iteration 3
Cj Basic x1 x2 s1 s2 Quantity
variables 40 50 0 0
50 x2 0 1 4/5 -1/5 8
40 x1 1 0 -3/5 2/5 24
Zj 40 50 16 6 1360
Cj-Zj 0 0 -16 -6

Therefore, the optimal solution:

x1 = 24 bowls
x2 = 8 mugs
s1 = 0 (unused labor)
s2 = 0 (unused clay)
Zj = RM1360

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Exercise

3.5 Solve the following LP model using simplex method.

Maximize Z = 4x1 + 5x2

subject to
2x1 + 2x2  20
3x1 + 7x2  42
x1 , x2  0

3.6 Write down the standard form and construct the initial simplex tableau for the following
linear programming problem:

Maximize Z = 3x1 + 2x2 + x3

subject to
x1 + 2x2 + 2x3  30
2x1 + 3x2 + x3  50
x1 - 2x2  0
x1 , x2 , x3  0

3.7 Consider a linear programming model;

Maximize Z = x1 + 3/2x2 + 2x3

subject to
2x1 + x2 + 2x3  30
x1 + 3x2 + 2x3  45
x1 , x2 , x3  0

The second simplex tableau for the above problem is given below:
Cj Basis x1 x2 x3 s1 s2 RHS
1 3/2 2 0 0
2 x3 1 ½ 1 ½ 0 15
0 s2 -1 2 0 -1 1 15
Zj 2 1 2 1 0 30
Cj-Zj -1 1/2 0 -1 0

Is the solution optimal? Explain. If not, obtain the optimal solution.

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Convert the following LP model into standard form by adding appropriate slack variable(s)
surplus variable(s) and artificial variable(s) to be used in the initial simplex tableau.

Example 3.6

Maximize Z = x1 + 2x2 + 2x3

subject to
x1 + x2 + 2x3  12
2x1 + x2 + 5x3 = 20
x1 + x2 - x3  8
x1, x2, x3  0

Maximize Z = x1 + 2x2 + 2x3 + 0s1 + 0s2 - MA1 - MA2

subject to
x1 + x2 + 2x3 + s1 = 12
2x1 + x2 + 5x3 + A1 = 20
x1 + x2 - x3 - s2 + A2 = 8
x1 , x2 , x3, s1 , s2 , A1 , A2 0
Example 3.7

Minimize Z = 6x1 + 3x2

subject to
2x1 + 4x2  16
4x1 + 3x2 = 24
x1, x2  0

Minimize Z = 6x1 + 3x2 + 0s1 + MA1 + MA2

subject to
2x1 + 4x2 - s1 + A1 = 16
4x1 + 3x2 + A2 = 24
x1 , x2 , s1 , A1 , A2  0

Exercise

Convert the following LP models to standard form.

3.8 3.9
Maximize Z = 30x1 + 40x2 + 35x3 Minimize Z = 84x1 + 4x2 + 30x3
subject to subject to
3x1 + 4x2 + 2x3  90 8x1 + x2 + 3x3  240
2x1 + x2 + x3 ≤ 54 16x1 + x2 + 7x3 ≥ 480
x1 + 3x2 + 2x3 = 93 8x1 - x2 + 4x3 ≥ 160
x1, x2, x3  0 x1, x2, x3  0

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3.7 SIMPLEX METHOD (slack variable, surplus variable and artificial variable)

Solve this LP model using simplex method

Maximize Z = 4x1 + 3x2

Subject to
2x1 + 2x2 ≤ 20
x1 + x2 ≥ 2
x1 , x2 ≥ 0

Standard form of LP model:

Maximize Z = 4x1 + 3x2 + 0S1 + 0S2 – MA1

Subject to
2x1 + 2x2 + s1 = 20
x1 + x2 - s2 + A1 = 2
x1 , x2 , s1 , s2 , A1 ≥ 0
Solution:

Iteration 1
Cj Basic 4 3 0 0 -M Quantity
Var x1 x2 s1 s2 A1
0 s1 2 2 1 0 0 20
-M A1 1 1 0 -1 1 2
Zj -M -M 0 M -M -2M
Cj - Zj 4+M 3+M 0 -M 0

Iteration 2
Cj Basic 4 3 0 0 Quantity
Var x1 x2 s1 s2
0 s1 0 0 1 2 16
4 x1 1 1 0 -1 2
Zj 4 4 0 -4 8
Cj - Zj 0 -1 0 4

Iteration 3
Cj Basic 4 3 0 0 Quantity
Var x1 x2 s1 s2
0 s2 0 0 1/2 1 8
4 x1 1 1 1/2 0 10
Zj 4 4 2 0 40
Cj - Zj 0 -1 -2 0

Optimal solution:
x1 = 10
x2 = 0
s1 = 0
s2 = 8
Z = 40

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3.8 SPECIAL CASES IN LINEAR PROGRAMMING

Four special cases that may occur in solving LP problems:

An infeasible An unbounded Alternate optimal

Degeneracy
problem problem solutions

1. An Infeasible Problem – LP problem with no feasible solution.

o Infeasibility is a condition that arises when there is no solution to a LP problem that

satisfies all of the constraints given.

Example 3.8

Maximize Z= 2x1 + 6x2

subject to
4x1 + 3x2  12
2x1 + x2  8
x1, x2  0

No feasible solution

o Simplex tableau : An infeasible problem is detected when an artificial variable still

in the final solution mix.

Basic x1 x2 s1 s2
Cj RHS
Var 2 6 0 0
2 x1 1 3/4 1/4 0 3
-M A2 0 -1/2 -1/2 -1 2
Zj 2 3/2+1/2M 1/2+1/2M M 6-2M
Cj-Zj 0 -1/2M+9/2 -1/2M-1/2 -M

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2. An Unbounded Problem – the objective function value (for maximization problem) gets
very large without bound

o The objective function can increase indefinitely without reaching a maximum value.
o The solution space is not completely closed in.

Example 3.9

Maximize Z= 2x1 + 6x2

subject to:
4x1 + 3x2  12
2x1 + x2  8
x1, x2  0

The solution is unbounded

o Simplex tableau : An unbounded problem is detected when all entries in the pivot
column are non positive, hence there will be no leaving variable.

Cj Basic x1 x2 s1 s2 RHS Ratio

Var 2 6 0 0
6 x2 2 1 0 -1 8 8/-1 = - 8
0 s1 2 0 1 -3 12 12/-3= - 4
Zj 12 6 0 -6 48
Cj-Zj -10 0 0 6

3. Alternate Optimal Solutions – LP problem has more than one optimal solution.

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o This is the case when the objective function’s isoprofit or isocost line runs perfectly
parallel to one of the problem’s constraint.
o Provide greater flexibility to the decision maker.

Example 3.10

Maximize Z = 60x1 + 60x2

subject to
3x1 + 3x2  90
2x1 + 4x2  80
x1 , x2  0

Alternate optimal solution

Corner points:

X1 X2 Z
0 0 0
30 0 1800
0 20 1200
20 10 1800

A corner points having the same maximum value indicate the LP problem has alternate
optimal solution.

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o Simplex tableau : Alternate optimal solutions is detected if the final tableau has
Cj – Zj value equal to 0 for a non-basic variable.

An alternate optimal solution

Cj Basic x1 x2 s1 s2 RHS
Var 60 60 0 0
60 x1 1 0 2/3 -1/2 20
60 x2 0 1 -1/3 1/2 10
Zj 60 60 20 0 1800
Cj-Zj 0 0 -20 0

4. Degeneracy

o A redundant constraint is one that does not affect the feasible solution region.

Example 3.11

Maximize Z = 80x1 + 70x2

subject to
2x1 + x2  120
x1 + x2  60
x1  70
x1 , x2  0

Redundant
constraint

Degeneracy

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o Simplex tableau : Degeneracy is detected in simplex tableau when more than one
row have similar smallest nonnegative numbers (ratio).

Iteration 1
Basic x1 x2 s1 s2 s3
Cj RHS Ratio
Var 80 70 0 0 0
0 s1 2 1 1 0 0 120 120/2 = 60
0 s2 1 0 0 1 0 70 70/1 = 70
0 s3 1 1 0 0 1 60 60/1 = 60
Zj 0 0 0 0 0 0 0
Cj-Zj 80 70 0 0 0 0

Choosing row s1 as the pivot row produces the following tableau:

Iteration 2
Basic x1 x2 s1 s2 s3
Cj RHS Ratio
Var 80 70 0 0 0
80 x1 1 1/2 1/2 0 0 60 60/1/2 =120
0 s2 0 -1/2 -1/2 1 0 10 10/-1/2 = x
0 s3 0 1/2 1/2 0 1 0 0/1/2 = 0
Zj 80 40 40 0 0 4800
Cj-Zj 0 30 -40 0 0

Degeneracy causes a basic variable to have zero value. In the second iteration above,
the basic variable s3 = 0.

Iteration 3
Basic x1 x2 s1 s2 s3
Cj RHS
Var 80 70 0 0 0
80 x1 1 0 1 0 -1 60
0 s2 0 0 -1 1 1 10
70 x2 0 1 -1 0 2 0
Zj 80 70 10 0 60 4800
Cj-Zj 0 0 -10 0 -60

In the third iteration, the basic variable x2 = 0.

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Exercises

Solve the following linear programming problems using the graphical method.

3.10 3.11
Maximize Z = x +y Maximize Z = 2x1 + x2

subject to subject to

x+y  1 3x1 + x2  3
-3x + y  3 4x1 + 3x2 ≥ 6
x, y  0 x1 + 2x2 ≥ 2
x1, x2  0

3.12 3.13
Maximize Z = 2x1 + 4x2 Maximize Z = 4x1 + 5x2

subject to subject to

x1 + 2x2  5 2x1 + 2x2 ≤ 100

x1 + x2 ≤ 4 x2 ≤ 25
x1, x2  0 x1 ≤ 60
x1, x2  0

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3.9 SENSITIVITY ANALYSIS WITH THE SIMPLEX TABLEAU

 Sensitivity analysis trace the changes that we make to our parameter.

» Changes in Resources/RHS Values

- Making changes in the resources/RHS values result in changes in the feasible region
and often the optimal point. This would also affect the value of the objective function.

- Making changes in the resources/RHS values also leads us to important topic of shadow
price.

- Shadow price is:

 The changes in value of the objective function for every additional unit of scarce
resource.

 It is also refer to maximum amount the firm should pay for every additional unit of
resource to make available.

Example 3.12

High Note Sound is a company that makes compact disks CD players (x1) and stereo receivers
(x2). The company wants to maximize profit.

LP model:

Maximize Profit = 50x1 + 120x2

subject to
2x1 + 4x2  80 (hours of electricians’ time available)
3x1 + x2  60 (hours of audio technicians’ time available)
x1 , x2  0

In the High Note Sound company; there are two resources available;

1. hours of electrician’s time

2. hours of technician’s time

For electrician’s time, there are 80 hours available; and 60 hours of technician’s time available.

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The graphical solution of the above problem is as follows:

D C

Corner point solution:

A (x1 = 0, x2 = 20, Z = 2,400)*

B (x1 = 16, x2 = 12, Z = 2,240)
C (x1 = 20, x2 = 0, Z = 1,000)
D (x1 = 0, x2 = 0, Z = 0)

Optimal solution:

x1 = 0 CD player
x2 = 20 stereo receivers
Z = RM2400

With 80 hours and 60 hours of electrician and technician’s time available, we are able to
produce RM2400 profit.

Now, if we add one hour of technician’s time from 80 hours to 81 hours; the following result is
obtained:

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 QMT425 – Quantitative Business Analysis

Change RHS value from 80 to 81 hours of electricians’ time available. Solve LP model.

Maximize Profit = 50x1 + 120x2

subject to
2x1 + 4x2  81
3x1 + x2  60
x1 , x2  0

D C

Corner point solution:

A (x1 = 0, x2 = 20.25, Z = 2,430)*

B (x1 = 15.9, x2 = 12.3, Z = 2,271)
C (x1 = 20, x2 = 0, Z = 1,000)
D (x1 = 0, x2 = 0, Z = 0)

Noticed that; 1 additional unit of the electrician’s hour, assuming no cost incurred, causes the
total profit to increase to RM2430. This is an increase of RM30.

Hence, the 1 additional hour of electrician’s time is worth RM30. This is known as shadow price
for electrician’s hour.

Shadow prices can be simply obtained from an optimal solution simplex tableau. These are the
numbers in the z-row of slack variable columns.

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The simplex solution for High Note Sound model:

Final simplex tableau:

Basic x1 x2 s1 s2
Cj Quantity
Var 50 120 0 0
120 x2 ½ 1 ¼ 0 20
0 s2 5/2 0 -1/4 1 40
Zj 60 120 30 0 2400
Cj-Zj -10 0 -30 0

Optimal solution:
Shadow price (ignore negative)
x1 = 0 (CD players) RM30 for one additional hour of
x2 = 20 (stereo receivers) electrician’s time
s1 = 0 (hour of unused time of electrician’s)
s2 = 40 (hours of unused time of audio technician’s) RM0 for one additional hour of
Z = RM2400 technician’s time

One additional hour of electrician’s time is worth RM30.

If the company increases 1 hour of electrician’s time, the new profit would be: RM2400+RM30.

One additional hour of technician’s time is worth nothing.

If the company increases 1 hour of technician’s time, the new profit would be: RM2400+RM0.

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Example 3.13

The management of a company has formulated the following linear programming problem.

Let
x1 = number of product 1 to produce
x2 = number of product 2 to produce
x3 = number of product 3 to produce

Maximize Profit, Z = 7x 1  3x 2  9x 3
subject to
4x1 + 5x2 + 6x3  360 hours (labor hour)
2x1 + 4x2 + 6x3  300 hours (machine hour)
9x1 + 5x2 + 6x3  600 kg (raw material)
x1,x2,x3  0

The following is the final simplex tableau for the above problem. Use this to answer the questions
below.

Cj Basic x1 x2 x3 s1 s2 s3 RHS
7 3 9 0 0 0
7 x1 1 0 0 -0.2 0 0.2 48
9 x3 0 0.83 1 0.3 0 -0.13 28
0 s2 0 -1 0 -1.4 1 0.4 36
Zj 7 7.5 9 1.3 0 0.2 a
Cj – Zj 0 -4.5 0 -1.3 0 -0.2

1. Why we said that the above tableau is the optimal tableau?

All Cj – Zj row values are less and equal to zero.

2. State and interpret the optimal solution.

x1 = 48; produce 48 units of product 1

x2 = 0; produce 0 unit of product 2
x3 = 28; produce 28 units of product 3
s1 = 0; raw material is fully utilized
s2 = 36; 36 hours machine time is unused
s3 = 0; workers’ time is fully utilized

3. Determine the value of a.

Z = a = 7(48) + 9(28) = RM588

4. Which resource(s) is/are not fully utilized? State the value.

Machine time is not fully utilized, hours left is 36 hours.

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5. How many hours of labor and machine and amount of raw material are used to reach the
optimal solution?

Used:

Labor hour = 360 hours

Machine hour = 300 – 36 = 264 hours
Raw material = 600kg

6. What are the shadow prices of the resources?

The shadow prices of labor hour = RM1.30

machine hour = RM0
raw material = RM0.20

7. What does a zero shadow price mean? How could this happen?

Shadow price RM0 means that 1 additional unit of the resource is worth nothing.
The resource is not fully utilized. e.g. optimal solution s2 = 36

8. Is it worthwhile to pay RM2 for 1 additional hour of the labor? Explain.

Not worthwhile because the maximum amount to pay is RM1.30.

9. Should the company pay RM3 for 3 more hours of the labor? Explain.

RM3
 RM1/hour ;
3hours

Worth, because the maximum amount to pay is RM1.30.

10. What will be the new Z value if the company increase 2 hours of labor? Increase 3 hours
of machine time? Decrease 3 kilograms of raw material?

Z = RM588 + 2(1.30) = RM590.60

Z = RM588 + 3(0) = RM588
Z = RM588 - 3(RM0.20) = RM587.40

11. Is there any alternative optimal solution? Why?

No. Because in Cj – Zj row, there is no non-basic variable equal to zero.

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Exercises

3.14 IMB Sdn. Bhd. manufactures three products, a, b and c. The products must go through
three production processes: Machining (Resource 1), Assembly (Resource 2) and Packaging
(Resource 3). The company wants to maximize profit. Profits for the products a, b and c are RM50,
RM20 and RM30 respectively. The simplex tableau for this problem is given below.

Cj Basic a b c s1 s2 s3 RHS
Variables
A 1 -1 0 1 -1 0 100
C 0 3 1 -1 2 0 40
s3 0 -1 0 0 1 1 25
Zj
Cj – Zj

a) Complete the above tableau.

b) Is the above tableau optimal? Explain.

c) State the optimal solution.

d) Which resource(s) is/are fully utilized.

e) Which resource(s) is/are not fully utilized and state the value(s).

f) State the shadow price for each resource and interpret.

g) What would be the effect on total profit if resource 1 was increased by 10 units and
resource 3 was increased by 5 units?

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 QMT425 – Quantitative Business Analysis

3.15 Beautiful Cotton Manufacturer produces two types of cotton cloths: denim and corduroy.
This company wants to maximize profit. Given below is the LP model in order to maximize profit.

Maximize profit = 6X1 + 4.5X2

subject to
3.5 X1  2.5 X 2  3250 (cotton usage, meters)
3.2X1  3 X 2  3000 (processing time, hours)
X1  510 (demand for corduroy, meters)
X1, X 2  0

The final simplex tableau for the above problem is shown below:

Cj Basic 6 4.5 0 0 0 Quantity

Variable X1 X2 S1 S2 S3
0 S1 0 0 1 -0.83 -0.83 325
4.5 X2 0 1 0 0.33 -1.07 456
6 X1 1 0 0 0 1 510
Zj 6 4.5 0 1.5 1.2 5112
Cj – Zj 0 0 0 -1.5 -1.2

X1 = number of meters of corduroy produced,

X2 = number of meters of denim produced,

S1, S2, and S3 are the slack variables for cotton usage, processing time and demand for
corduroy respectively.

a) Determine the optimal production level and the maximum profit obtained.

b) How much cotton and processing time are left over in the optimal solution?

c) What is the maximum amount the manufacturer is willing to spend for an additional
processing time?

d) If the manufacturer increase one meter of cotton at cost RM3 will it be worthwhile? Why?

e) Does this problem have alternate optimal solution? Explain.

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3.10 THE DUAL

 Every LP primal model has a dual model.

 The first way of stating a linear problem is called the primal of the problem. The second way
of stating the same problem is called the dual.

Step to form a dual:

Primal Dual

Objective function maximization Objective function minimization

Objective function minimization Objective function maximization

RHS values Objective function coefficients

Constraints coefficients Transpose of primal constraints coefficients

Objective function coefficients RHS values

Constraint inequality sign Inequality signs reversed

Example 3.14

Primal model

Maximize Profit = 50x1 + 120x2

subject to
2x1 + 4x2  80
3x1 + x2  60
x1 , x2  0
Dual model

Minimize Opportunity Cost = 80y1 + 60y2

subject to
2y1 + 3y2  50
4y1 + y2  120
y1, y2  0

 In the final simplex tableau of primal problem; the absolute value of the number in the Cj-Zj
row under slack variables represent the solutions to the dual problem

 It also happens that the absolute value of the Cj-Zj values of the slack variables in the dual
solution represent the optimal values of the primal X1 and X2.

 The minimum opportunity cost derived in the dual must always equal to the maximum
profit derived in the primal

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Example 3.15

Primal model
Maximize Profit = 50x1 + 120x2
subject to
2x1 + 4x2  80
3x1 + x2  60
x1 , x2  0

Optimal tableau of primal model:

Cj Basic x1 x2 s1 s2 Quantity
Var 50 120 0 0
120 x2 ½ 1 ¼ 0 20
0 s2 5/2 0 -1/4 1 40
Zj 60 120 30 0 2400
Cj -Zj -10 0 -30 0

Primal optimal solution: Dual optimal solution:

x1 = 0 y1 = 30
x2 = 20 y2 = 0
s1 = 0 s1 = 10
s2 = 40 s2 = 0
Z = RM2400 Z = RM2400

Dual model
Minimize Opportunity Cost = 80y1 + 60y2
subject to
2y1 + 3y2  50
4y1 + y2  120
y1, y2  0
Optimal tableau of dual model:

Dual model
Basic y1 y2 s1 s2
Cj Quantity
Var 80 60 0 0
80 y1 1 ¼ 0 -1/4 30
0 s1 0 -5/2 1 -1/2 10
Zj 80 20 0 -20 2400
Zj - Cj 0 -40 0 -20

Dual optimal solution: Primal optimal solution:

y1 = 30 x1 = 0
y2 = 0 x2 = 20
s1 = 10 s1 = 0
s2 = 0 s2 = 40
Z = RM2400 Z = RM2400

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Exercises

Write the dual.

3.16 3.17
Maximize Z = 3x1 + 9x2 Maximize Z = 5x1 +7x2

subject to subject to

2x1 + 4x2  8 x1 6
x1 + 7x2 ≤ 7 2x1 + 3x2 ≤ 19
x1, x2  0 x1 + x2 ≤ 8
x1, x2  0

3.18 3.19
Minimize Z = x 1  2x 2 Maximize Z =30x1+ 20x2 + 40x3

subject to subject to

x1 + x2  40 5x1 + 9x2 + 8x3 ≤ 450

2x1 + 4x2  60 3x1 – 4x2 ≥ 120
x1 + x2  0 x1, x2, x3 ≥ 0

Problems

3.1 A manufacturer has two versions of a toy house. The version X requires 23 sq cm of
plywood, 2 pounds of plastic and 15 minutes of assembling. The version Y requires 31 sq cm of
plywood, 3 pounds of plastic and 25 minutes of assembling. There are 9000 sq cm of plywood,
100 pounds of plastic and 42 hours of assembling time available. Each unit of version X results
in RM4 of profit and for version Y the unit profit is RM5. The manufacturer will not produce more

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 QMT425 – Quantitative Business Analysis

than 25 units of version Y and there must be a minimum of 5 units of each version produced to
cater for previous orders.

Formulate (do not solve) a linear programming model with the objective of maximizing profit.

3.2 A farmer wants to determine the number of acres of land to be planted with bananas and
starfruits. He has 80 acres of land and has allocated a capital of RM10,000 to develop the land.
The expenditures needed to plant the bananas and starfruits per acre are RM100 and RM150
respectively. The average yields per acre are 500 kg of bananas and 300kg of starfruits. The fruits
are kept in the backyard store before they are sold. The store can only hold 6,000 kg of fruits at
one time. The net profit of each kg of bananas and starfruits are RM0.60 and RM0.90 respectively.

Formulate the above problem as a linear programming model to maximize the net profit.

3.3 Rahman the successful farmer has a 50 acres farm on which to plant tomatoes and
cucumbers. He has 300 hours of labor per week and 800 tons of fertilizer available and has
contracted for shipping space for a maximum of 26 acres worth of tomatoes and 37 acres worth
of cucumbers. An acre of tomatoes requires 10 hours of labor and 8 tons of fertilizer, whereas an
acre of cucumbers requires 3 hours of labor and 20 tons of fertilizer. The profit from an acre of
tomatoes is RM400 and the profit from an acre of cucumbers is RM300.

Formulate the linear programming model for this problem to maximize profit.

3.4 A marketing company is doing research in order to maximize their profit of selling products
X, Y and Z. These products will be sold from door to door. X is sold at RM7 per unit. It takes a
salesperson 10 minutes to sell one unit of X and it costs RM1 to deliver the goods to the customer.
Y is sold at RM5 each. It takes a salesperson 15 minutes to sell one unit of Y. The goods are left
with the customer at the time of sale. Z is sold at RM12 each. It takes a salesperson 12 minutes
to sell one unit of Z and it costs RM0.80 to deliver the goods. During any week, a salesperson is
only allowed delivery expenses of not more than RM75 and selling time is expected not to exceed
30 hours. If the unit costs of X, Y and Z are respectively RM2.20, RM 1.80 and RM4.25, how
many units of X, Y and Z must be sold to maximize the total sales? Formulate the problem as a
linear programming model (Do not solve the problem).

3.5 The Mighty Silver Ball Company manufactures three kinds of pinball machines, each
requiring a different manufacturing technique. Each Super Deluxe Machine (SDM) requires 17
hours of labor, 8 hours of testing and yields a profit of RM300. Each Silver Ball Special (SBS)
requires 10 hours of labor, 4 hours of testing and yields a profit of RM200. Each Bumper King
(BK) requires 2 hours of labor, 2 hours of testing and yields a profit of RM100. There are 1,000
hours of labor and 500 hours of testing time available. The company wants to produce at least
200 pinball machines. In addition, a marketing forecast has shown that the demand for the Super
Deluxe is no more than 50 machines, demand for the Silver Ball Special is no more than 80 and
demand for the Bumper King is no more than 150. The manufacturer wants to determine the
optimal production schedule that will maximize his total profit. Formulate this as a linear
programming problem.

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 QMT425 – Quantitative Business Analysis

3.6 The dean from one of the private university in Selangor must plan the school’s course
offerings for the first semester next year. Student demands make it necessary to offer at least 30
undergraduate and 20 postgraduate courses in the term. Faculty contracts also dictate that at
least 60 courses be offered in total. Each undergraduate course taught costs the college an
average of RM2500 in faculty wages, and each postgraduate course costs RM3000. The dean
wants to make sure so that total faculty salaries are kept to a minimum.

Formulate the linear programming model for the above problem.

3.7 C-Bizz Mart is a retail catalog store specializing in cosmetics. Phone orders are taken
each day by a large pool of computer operators, some of whom are permanent and some
temporary. A permanent operator can process an average of 75 orders per day, whereas
temporary operator can process an average of 52 orders per day. The company receives an
average of at least 600 orders per day. The store has 10 computer workstations. A permanent
operator will process about 1.3 orders with errors each day, whereas a temporary operator will
average 4.2 orders with errors daily. The store wants to limit errors to 24 per day. A permanent
operator is paid RM60 per day including benefits and temporary operator is paid RM40 per day.
The company wants to know the number of permanent and temporary operators to hire to
minimize costs.

Formulate a linear programming model for C-Bizz Mart problem.

3.8 Maxi Designs Sdn. Bhd. has been awarded a contract to design a label for a new computer
produced by KC Computer Company. Maxi Designs estimates that at least 160 hours will be
required to complete the project. Three of the firm's graphic designers are available for
assignment to this project: Aida, a senior designer and team leader; Bakri, a senior designer; and
Carol, a junior designer. Since Aida has worked on several projects for KC, management has
specified that Aida must be assigned at least 45% of the total number of hours that are assigned
to the two senior designers. To provide label-designing experience for Carol, Carol must be
assigned at least 20% of the total project time. However, the number of hours assigned to Carol
must not exceed 25% of the total number of hours that are assigned to the two senior designers.
Due to other project commitments, Aida has a maximum of 50 hours available to work on this
project. Hourly wage rates are RM40 for Aida, RM30 for Bakri and RM20 for Carol.

Formulate a linear programming model to determine the number of hours each graphic designer
should be assigned to the project in order to minimize total cost of wages.

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 QMT425 – Quantitative Business Analysis

Solve the following linear programming problems using the graphical method.

3.9 Maximize Z = 3x + 6y 3.10 Maximize Z = x1 + 5x2

subject to subject to
3x + 2y  18 5x1 + 5x2  25
x+ y 5 2x1 + 4x2 ≤16
x ≤4 x1 ≤5
x, y  0 x1, x2  0

3.11 Maximize Z = 4x1 + 4x2 3.12 Maximize Z = 2x1 + 3x2

subject to subject to

3x1 + 5x2  150 x1 + 2x2 ≥ 160

x1 - 2x2 ≤10 2x1 + x2 ≤ 200
5x1 + 3x2 ≤150 4x2 ≤ 200
x1, x2  0 x1, x2  0

3.13 Minimize Z = x +y 3.14 Minimize Z = 10x1 + 20x2

subject to subject to

x + 2y  7 6x1 + 2x2 ≥ 36
2x + y  5 2x1 + 4x2 ≥ 32
x + 6y  11 x2 ≤ 20
x, y  0 x1, x2  0

3.15 Minimize Z = X + 2Y
subject to
2X + 3Y = 600
Y ≥ 2X
X ≥ 150
X, Y ≥0

3.16 Consider the following linear programming problem.

Minimize Z  2000 x 1  700 x 2  1600 x 3

Subject to
5x 1  2x 2  2x 3  20
4x 1  x 2  2x 3  30
x 1, x 2 , x 3  0

a) Write the dual for the above linear programming problem in variable Y.

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 QMT425 – Quantitative Business Analysis

The following is an incomplete final simplex tableau for the dual model (a).

Cj Basic 20 30 0 0 0
variable Y1 Y2 S1 S2 S3 Quantity
30 Y2 1.25 1 0.25 0 0 500
0 S2 0.75 0 -0.25 1 0 200
0 S3 -0.5 0 -0.5 0 1 600
Zj
Cj-Zj
b) Complete the above simplex tableau.
c) State the optimal solution for the dual.
d) State the optimal solution for the primal based on the final simplex tableau.

3.17 The following is the incomplete final simplex tableau for the primal, where S1, S2 and S3
are the slack variable.

Cj Solution 10 24 50 0 0 0 Quantity
Mix X1 X2 X3 S1 S2 S3
10 X1 1 0 0 4 -2 -1 4
24 X2 0 1 0 0 2 -1 3
50 X3 0 0 1 0 0 1 2
Zj
Cj  Z j

a) Complete the above simplex tableau.

b) Explain why this tableau gives the optimal solution.

c) What is the optimal solution for the primal? Dual?

3.18 The Toy Race Car Company manufactures three different race-cars called Racer 1, Racer
2 and Racer 3. The resources required to make the products are technical services, labor and
administration. Table below gives the requirements for the production.

Product Technical Labor Administration Unit profit

services (hour) (hour) (hour) (RM)
Racer 1 1 10 2 10
Racer 2 2 4 2 6
Racer 3 3 5 6 4

Each week there are 100 hours of technical services available, 600 hours of labor and 300 hours
of administration.

a) Formulate the problem as a linear programming problem.

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 QMT425 – Quantitative Business Analysis

The optimal simplex tableau for the above problem is given below. The S1, S2, S3 are the slack
variables for technical services, labor and administration, respectively.

Cj Basic 10 6 4 0 0 0 Quantity
Variables X1 X2 X3 S1 S2 S3
6 X2 0 1 5/6 5/3 -1/6 0 200/3
10 X1 1 0 1/6 -2/3 1/6 0 100/3
0 S3 0 0 4 -2 0 1 100
Zj 10 6 6.7 3.3 0.7 0
Cj – Zj 0 0 -2.7 -3.3 -0.7 0

b) Fill in the values on Zj and Cj-Zj rows.

c) Specify the optimal daily production levels of the three products. What is the total profit?

d) Which resource(s) is not fully utilized? If so, how much spare capacity is left?

e) If the company had an opportunity to purchase additional resources, which resource would
be the most valuable? How much would the company be willing to pay for this resource?

f) Write down the dual of the problem.

g) Give the solution of the dual problem.

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