Linear Optimization Models

Topic 8

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 Introduction (Slide 1 of 3)
• Optimization Problems:
• Can be used to support and improve managerial decision making.
• Maximize or minimize some function, called the objective function, and
have a set of restrictions known as constraints.
• Can be linear or nonlinear.

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 Introduction (Slide 2 of 3)
• Typical Applications:
• A manufacturer wants to develop a production schedule and an inventory policy that will
satisfy demand in future periods and at the same time minimize the total production and
inventory costs.
• A financial analyst would like to establish an investment portfolio from a variety of stock and
bond investment alternatives that maximizes the return on investment.
• A marketing manager wants to determine how best to allocate a fixed advertising budget
among alternative advertising media such as web, radio, television, newspaper, and magazine
that maximizes advertising effectiveness.
• A company had warehouses in a number of locations. Given specific customer demands, the
company would like to determine how much each warehouse should ship to each customer so
that total transportation costs are minimized.

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 Introduction (Slide 3 of 3)
• Linear optimization models are also known as linear programs.
• Linear programming:
• A problem-solving approach developed to help managers make better
decisions.
• Numerous applications in today’s competitive business environment.
• For instance, GE Capital uses linear programming to help determine optimal
lease structuring.
• Marathon Oil Company uses linear programming for gasoline blending and
to evaluate the economics of a new terminal or pipeline.

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 A Simple Maximization Problem
Problem Formulation
Mathematical Model for the Par, Inc. Problem

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 A Simple Maximization Problem (Slide 1 of 11)
Illustration: Par, Inc.:
• Par, Inc.—A small manufacturer of golf equipment and supplies.
• Management has decided to move into the market for medium- and high-priced
golf bags.
• Par’s distributor has agreed to buy all of the golf bags produced over the next
three months.

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A Simple Maximization Problem (Slide 2 of 11)
Illustration: Par, Inc. (cont.):
• Operations involved in manufacturing a golf bag:
• Cutting and dyeing the material.
• Sewing.
• Finishing (inserting umbrella holder, club separators, etc.).
• Inspection and packaging.

Table 12.1:
Production
Requirements Per
Golf Bag

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A Simple Maximization Problem (Slide 3 of 11)
Illustration: Par, Inc. (cont.):
• Estimated total time available for the next three months to perform
different operations:
Department Number of hours
Cutting and Dyeing 630
Sewing 600
Finishing 708
Inspection and Packaging 135

• Required profit contribution:

• Standard bag: $10/unit.
• Deluxe bag: $9/unit.

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 A Simple Maximization Problem (Slide 4 of 11)
Illustration: Par, Inc. (cont.):
• Develop a mathematical model of the Par, Inc. problem to determine the
number of standard bags and the number of deluxe bags to produce to
maximize total profit contribution.
Problem Formulation:
• Problem formulation or modeling: Process of translating the verbal statement
of a problem into a mathematical statement.

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 A Simple Maximization Problem (Slide 5 of 11)
Problem Formulation (cont.):
• General guidelines for problem formulation:
• Understand the problem thoroughly.
• 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.

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 A Simple Maximization Constraint Description

Problem (Slide 6 of 11) 1 Number of hours of cutting and dyeing

time used must be less than or equal to
the number of hours of cutting and
dyeing time available.
•Problem Formulation (cont.):
• Describe each constraint. 2 Number of hours of sewing time used
must be less than or equal to the number
of hours of sewing time available.

3 Number of hours of finishing time used

must be less than or equal to the number
of hours of finishing time available.

4 Number of hours of inspection and

packaging time used must be less than or
equal to the number of hours of
inspection and packaging time available.

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A Simple Maximization Problem (Slide 7 of 11)
Problem Formulation (cont.):
• Define the decision variables:
• S = number of standard bags.
• D = number of deluxe bags.
• Write the objective in terms of the decision variables.
• If Par makes $10 for every standard and $9 for every deluxe bag,
Total profit contribution  10 S  9D  objective function.
Objective: Max 10 S  9D.

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A Simple Maximization Problem (Slide 8 of 11)
Problem Formulation (cont.):
• Write the constraints in terms of the decision variables:
• Constraint 1:  Hours of cutting and   Hours of cutting and 
  
 dyeing time used   dyeing time available 
7
S  1D  630
10
• Constraint 2:  Hours of sewing   Hours of sewing 
  
 time used   time available 
1 5
S  D  600
2 6

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A Simple Maximization Problem (Slide 9 of 11)
Problem Formulation (cont.):
 Hours of finishing   Hours of finishing  2
• Constraint 3:    1S  3 D  708
 time used   time available 

 Hours of inspection and   Hours of inspection and  1 1

• Constraint 4:    S  D  135
 packaging time used   packaging time available  10 4

• Nonnegativity constraints: Based on the fact that the number of standard or

deluxe bags produced cannot be negative.
S  0 and D  0 or S , D  0

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A Simple Maximization Problem (Slide 10 of
11)
Mathematical Model for the Par, Inc. Problem:
• Mathematical model: A set of mathematical relationships Max 10 S  9D.
subject to (s.t.) 7
S  1D  630 Cutting and dyeing
10
1 5
S  D  600 Sewing
2 6
2
1S  D  708 Finishing
3
1 1
S  D  135 Inspection and packaging
10 4
S, D  0

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 A Simple Maximization Problem (Slide 11 of 11)
Mathematical Model for the Par, Inc. Problem (cont.):
• This is a linear programming model (or linear program) because the objective
function and all constraint functions are linear functions of the decision variables.
• Linear function: Mathematical function in which each variable appears in a
separate term and is raised to the first power.

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 Solving the Par, Inc. Problem
The Geometry of the Par, Inc. Problem
Solving Linear Programs with Excel Solver

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 Solving the Par, Inc. Problem (Slide 1 of 13)
• To find the optimal solution to the problem modeled as a linear program:
• The optimal solution must have the highest objective function value.
• The optimal solution must be a feasible solution—a setting of the decision
variables that satisfies all of the constraints of the problem.
• Search over the feasible region—a set of all possible solutions.
• Find the solution that gives the best objective function value.

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 Solving the Par, Inc. Problem (Slide 2 of 13)
The Geometry of the Par, Inc. Problem:
• When there are only two decision variables and the functions of these variables
are linear, they form lines in two-dimensional space.
• If constraints are inequalities, the constraint cuts the space in two:
• The line and the area on one side of the line is the space the satisfies that
constraint.
• These subregions are called half spaces.
• The intersection of the half spaces make up the feasible region.

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Solving the Par,
Inc. Problem
(Slide 3 of 13)
Figure 12.1: Feasible Region for the
Par, Inc. Problem

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 Solving the Par,
Inc. Problem
(Slide 4 of 13)
Figure 12.2: The Optimal Solution to the Par,
Inc. Problem

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 Solving the Par, Inc. Problem (Slide 5 of 13)
The Geometry of the Par, Inc. Problem (cont.):
• Based on the geometry of Figure 12.2, to solve a linear optimization problem we
only have to search the extreme points of the feasible region to find the optimal
solution.
• Extreme points are found where constraints intersect on the boundary of the
feasible region.

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 •The Geometry of the Par, Inc. Problem
Solving the Par, Inc. (cont.):

Problem (Slide 6 of 13) • The values of S and D and the objective

function value are:

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 Solving the Par, Inc. Problem (Slide 7 of 13)
The Geometry of the Par, Inc. Problem (cont.):
• The approach of investigating only extreme points works well and generalizes for larger
problems.
• The simplex algorithm, developed by George Dantzig, is quite effective at investigating
extreme points in an intelligent way to find the optimal solution to even very large linear
programs.
• Excel Solver is software that utilizes Dantzig’s simplex algorithm to solve linear programs by
systematically finding which set of constraints form the optimal extreme point of the feasible
region.
• Once it finds an optimal solution, Solver then reports the optimal values of the decision
variables and the optimal objective function value.

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 Solving the Par, Inc. Problem (Slide 8 of 13)
Solving Linear Programs with Excel Solver:
• The first step is to construct the relevant what-if model.
• A what-if model for optimization allows the user to try different values of the
decision variables and see:
• Whether that trial solution is feasible.
• The value of the objective function for that trial solution.

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Solving the Par, Inc. Problem (Slide 9 of 13)
Figure 12.3: What-If Spreadsheet Model for Par, Inc.

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 Solving the Par,
Inc. Problem (Slide
10 of 13)
Figure 12.4: Solver Dialog Box and
Solution to the Par, Inc. Problem

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 Solving the Par, Inc. Problem (Slide 11 of 13)
Solving Linear Programs with Excel Solver (cont.):
• The optimal solution:
• To make 540 Standard bags and 252 Deluxe bags for a profit of $7,668.
• Using all the cutting and dyeing time as well as all finishing time, from cells
B19:B22 compared to C19:C22.
• The results are consistent with the results obtained in Figures 12.1 and 12.2.

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 Solving the Par,
Inc. Problem
(Slide 12 of 13)
Figure 12.5: The Solver Answer Report for
the Par, Inc. Problem

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 Solving the Par, Inc. Problem (Slide 13 of 13)
Solving Linear Programs with Excel Solver (cont.):
• A binding constraint is one that holds as an equality at the optimal solution.
• The slack value for each less-than-or-equal-to constraint indicates the difference
between the left-hand and right-hand values for a constraint.
• By adding a nonnegative slack variable, we can make the constraint equality.

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 A Simple Minimization Problem
Problem Formulation
Solution for the M&D Chemicals Problem

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 A Simple Minimization Problem (Slide 1 of 6)

Illustration: M&D Chemicals:

• Production requirements for M&D Chemicals:
• The combined production for products A and B must total at least 350 gallons.
• Separately, a major customer’s order for 125 gallons of product A must also be
satisfied.
• Processing time:
• Product A: 2 hours/gallon.
• Product B: 1 hour/gallon.
• For the coming month, 600 hours of processing time are available.

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A Simple Minimization Problem (Slide 2 of 6)
Illustration: M&D Chemicals (cont.):
• Production cost: Product A: $2/gallon; Product B: $3/gallon.
• Objective: Minimizing the total production cost.
Problem Formulation:
• To find the minimum-cost production schedule:
• Define the decision variables and the objective function:
Let A = number of gallons of product A to produce.
B = number of gallons of product B to produce.
• Objective function  Min 2 A  3B.

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A Simple Minimization Problem (Slide 3 of 6)
Problem Formulation (cont.):
• Linear program for the M&D Chemicals problem:
Min 2A  3B
s.t.
1A  125 Demand for product A
1A  1B  350 Total production
2 A  1B  600 Processing time
A, B  0

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 A Simple Minimization Problem (Slide 4 of 6)

Solution for the M&D Chemicals Problem:

• A spreadsheet model for the M&D Chemicals problem along with the Solver dialog
box are shown in Figure 12.6.
• The optimal solution (Figure 12.7) is to make 250 gallons of product A and 100
gallons of product B, for a total cost of $800.
• Both the total production constraint and the processing time constraints are binding;
the requirement that at least 125 gallons of Product A be produced is not binding.
• A surplus variable tells how much over the right-hand side the left-hand side of a
greater-than-or-equal-to constraint is for a solution.

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A Simple Minimization Problem (Slide 5 of 6)
Figure 12.6: Solver Dialog Box and Solution to the M&D Chemical Problem

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 A Simple
Minimization
Problem (Slide 6
of 6)
Figure 12.7: The Solver Answer
Report for the M&D Chemicals
Problem

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 Special Cases of Linear Program
Outcomes
Alternative Optimal Solutions
Infeasibility
Unbounded

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 Special Cases of Linear Program Outcomes
(Slide 1 of 12)
Alternative Optimal Solutions:
• An alternative optimal solution is one in which the optimal objective function
contour line coincides with one of the binding constraint lines on the boundary
of the feasible region.
• In these situations, more than one solution provides the optimal value for the
objective function.

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Special Cases of Linear Program Outcomes
(Slide 2 of 12)

Illustration: Par, Inc.:

• Original objective function: 10 S  9D.
• Assume the profit for the standard golf bag decreased to $6.30.
• Revised objective function: 6.3S  9D.
• The optimal solution occurs at two extreme points:
• Extreme point 4 (S = 300, D = 420).
• Extreme point 3 (S = 540, D = 252).

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Special Cases of Linear Program Outcomes
(Slide 3 of 12)
Figure 12.8: Par, Inc.
Problem with an Objective
Function of

6.3S  9D (Alternative
Optimal Solutions)

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 Special Cases of Linear Program Outcomes
(Slide 4 of 12)
Infeasibility:
• Infeasibility means no solution to the linear programming problem satisfies all
the constraints, including nonnegativity conditions.
• Graphically, a feasible region does not exist.
• Infeasibility occurs because:
• Management’s expectations are too high.
• Too many restrictions have been placed on the problem.

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 •Figure 12.9: No Feasible
Region for the Par, Inc.
Problem with Minimum
Production Requirements of
500 Standard and 360
Deluxe Bags

Special Cases of Linear

Program Outcomes (Slide 5
of 12)

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 Special Cases of Linear Program Outcomes
(Slide 6 of 12)
Infeasibility (cont.):
• Interpretation of Infeasibility for the Par, Inc. problem.
• Let management know that the resources available are not sufficient to make
500 standard bags and 360 deluxe bags.
• Provide details to management on:
• Minimum amounts of resources that must be available.
• The amounts currently available.
• Additional amounts that would be required to accomplish this level of
production.

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Special Cases of Linear Program Outcomes (Slide
7 of 12)
Table 12.2: Resources Needed to Manufacture 500 Standard Bags and 360 Deluxe Bags

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 Special Cases of Linear Program Outcomes (Slide 8 of
12)
Infeasibility (cont.):
• An infeasible problem when solved in Excel Solver:
• Will return a message indicating that no feasible solutions exists—indicating no solution
to the linear programming problem will satisfy all constraints.
• Careful inspection of your formulation is necessary to identify why the problem is
infeasible.
• One of the approaches is to drop one or more constraints and re-solve the problem.
• If we find an optimal solution for this revised problem, then the constraint(s) that were
omitted, in conjunction with the others, are causing the problem to be infeasible.

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 Special Cases of Linear Program Outcomes (Slide 9 of
12)
Unbounded:
• Unbounded: The situation in which the value of the solution:
• May be made infinitely large—for a maximization linear programming.
• May be made infinitely small—for a minimization linear programming.
• Without violating any of the constraints.

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Special Cases of Linear Program Outcomes
(Slide 10 of 12)
Illustration:
Consider the following linear program with two decision variables, X and Y:

Max 20 X  10Y
s.t.
1X 2
1Y  5
X, Y  0

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Special Cases of
Linear Program
Outcomes (Slide
11 of 12)
Figure 12.10: Example of an
Unbounded Problem

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 Special Cases of Linear Program Outcomes (Slide 12 of 12)
Unbounded (cont.):
• Solving an unbounded problem using Excel Solver returns a message “Objective
Cell values do not converge.”
• In linear programming models of real problems, the occurrence of an
unbounded solution means that the problem has been improperly formulated.
• If a profit maximization problem results in an unbounded solution, the
mathematical model does not represent the real-world problem sufficiently.
• In many cases, this error is the result of inadvertently omitting a constraint
during problem formulation.

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 Sensitivity Analysis
Interpreting Excel Solver Sensitivity Report

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 Sensitivity Analysis (Slide 1 of 6)

• Sensitivity analysis: The study of how the changes in the input parameters of an optimization
model affect the optimal solution.
• It helps in answering the questions:
• How will a change in a coefficient of the objective function affect the optimal solution?
• How will a change in the right-hand-side value for a constraint affect the optimal
solution?
• Because sensitivity analysis (often referred to as postoptimality analysis) is concerned with
how these changes affect the optimal solution, the analysis does not begin until the optimal
solution to the original linear programming problem has been obtained.

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Sensitivity Analysis (Slide 2 of 6)
Interpreting Excel Solver Sensitivity Report
• Consider the M&D Chemicals problem:
A = number of gallons of product A.
B = number of gallons of product B.
Min 2 A  3B
s.t.
1A  125 Demand for product A
1A  1B  350 Total production
2 A  1B  600 Processing time
A, B  0

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 Sensitivity Analysis (Slide 3 of 6)

Interpreting Excel Solver Sensitivity Report (cont.):

• The shadow price for a constraint is the change in the optimal objective function value if the
right-hand side of that constraint is increased by one.
• Nonbinding constraints will always have a shadow price of zero.
• Making a binding constraint more restrictive degrades or leaves unchanged the optimal
objective function value.
• Making a binding constraint less restrictive improves or leaves unchanged the optimal
objective function.
• Shadow prices are symmetric; the negative of the shadow price is the change in the objective
function for a decrease of 1 in the right-hand side.

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 Sensitivity
Analysis (Slide 4
of 6)
Figure 12.11: Solver Sensitivity Report
for the M&D Chemicals Problem

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 Sensitivity Analysis (Slide 5 of 6)

Interpreting Excel Solver Sensitivity Report (cont.):

• The reduced cost for a decision variable is the shadow price of the nonnegativity
constraint for that variable.
• The Allowable Increase and Allowable Decrease indicate the change in the
objective function coefficient for which the current optimal solution will remain
optimal.
• The Excel Solver Sensitivity Report can provide useful information about the
sensitivity of the optimal solution to changes in the model input data.

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 Sensitivity Analysis (Slide 6 of 6)

Interpreting Excel Solver Sensitivity Report (cont.):

• Classical sensitivity analysis:
• Based on the assumption that only one piece of input data has changed.
• It is assumed that all other parameters remain as stated in the original problem.
• When interested in what would happen if two or more pieces of input data are
changed simultaneously:
• The easiest way to examine the effect of simultaneous changes is to make the
changes and rerun the model.

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 General Linear Programming Notation
and More Examples
Investment Portfolio Selection
Transportation Planning
Maximizing Banner Ad Revenue

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General Linear Programming Notation and
More Examples (Slide 1 of 32)
• The general notation for linear programs uses the letter x with a
subscript.
• In the Par, Inc. problem the decision variables could be denoted as:
x1  number of standard bags.
x2  number of deluxe bags.
• Advantage: Formulating a mathematical model for a problem that
involves a large number of decision variables is much easier.
• Disadvantage: Not being able to easily identify what the decision
variables actually represent in the mathematical model.

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General Linear Programming Notation and
More Examples (Slide 2 of 32)
Illustration: Par, Inc. model using the general notation:
Max 10 x1  9 x2 7
x1  1x2  630 Cutting and dyeing
s.t. 10
1 5
x1  x2  600 Sewing
2 6
2
1x1  x2  708 Finishing
3
1 1
x1  x2  135 Inspection and packaging
10 4
x1 , x2  0

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 General Linear Programming Notation and More
Examples (Slide 3 of 32)

Investment Portfolio Selection:

• Portfolio selection problems involve situations in which a financial manager
must select specific investments—for example, stocks and bonds—from a
variety of investment alternatives.
• Objective: Maximization of expected return or minimization of risk.
• Constraints: Restrictions on the type of permissible investments, state laws,
company policy, and so on.

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 General Linear Programming Notation and More
Examples (Slide 4 of 32)

Illustration:
• Welte Mutual Funds, Inc., located in New York City, is looking for investment
opportunities for $100,000.
• The firm’s top financial analyst identified five investment opportunities and
projected their annual rates of return.

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 Projected Rate of
Investment Return (%)
General Linear Atlantic Oil 7.3
Programming
Notation and More Pacific Oil 10.3
Examples (Slide 5 Midwest
of 32)
Steel 6.4
Table 12.3: Investment Opportunities
for Welte Mutual Funds Huber Steel 7.5
Government
bonds 4.5

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 General Linear Programming Notation and More
Examples (Slide 6 of 32)

Illustration: Welte Mutual Funds (cont.):

• Investment guidelines:
• Neither industry (oil or steel) should receive more than $50,000.
• Amount invested in government bonds should be at least 25% of the steel
industry investments.
• The investment in Pacific Oil, the high-return but high-risk investment,
cannot be more than 60% of the total oil industry investment.

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General Linear Programming Notation and
More Examples (Slide 7 of 32)
Illustration: Welte Mutual Funds (cont.):
• Define the following decision variables:
X1  dollars invested in Atlantic Oil
X2  dollars invested in Pacific Oil
X 3  dollars invested in Midwest Steel
X 4  dollars invested in Huber Steel
X 5  dollars invested in government bonds
• Specify the objective: Maximizing return.
Max 0.073 X1  0.103 X2  0.064 X 3  0.075 X 4  0.045 X 5

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General Linear Programming Notation and
More Examples (Slide 8 of 32)
Illustration: Welte Mutual Funds (cont.):
• Define the constraints:
Constraint 1: X1  X2  X 3  X 4  X 5  100,000
Constraint 2: X1  X2  50,000
X 3  X 4  50,000
Constraint 3: X 5  0.25  X 3  X 4 
Constraint 4: X2  0.60  X1  X2 
Nonnegativity constraints: X1 , X2 , X 3 , X 4 , X 5  0

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General Linear Programming Notation and
More Examples (Slide 9 of 32)
Illustration: Welte Mutual Funds (cont.):
• Linear programming model for the Welte Mutual Funds investment
problem:

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 General Linear
Programming
Notation and More
Examples (Slide
10 of 32)
Figure 12.12: The Solution for the
Welte Mutual Funds Problem

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 General Linear Programming Notation and More
Examples (Slide 11 of 32)

Transportation Planning:
• The transportation problem arises in planning for the distribution of goods and
services from several supply locations to several demand locations.
• Quantity of goods available at each supply location (origin) is limited.
• Quantity of goods needed at each of several demand locations (destinations) is
known.
• Objective: Minimize the cost of shipping goods from the origins to the
destinations.

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 General Linear Programming Notation and More
Examples (Slide 12 of 32)

Illustration: Foster Generators:

• Involves the transportation of a product from three plants to four distribution
centers.
• To determine how much of its production should be shipped from each plant to
each distribution center.

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General Linear Programming
Notation and More Examples
(Slide 13 of 32)
•Illustration: Foster Generators (cont.): Three-Month Production
• Production capacities over the next Origin Plant Capacity (Units)
three-month planning period for 1 Cleveland 5,000
one type of generator: 2 Bedford 6,000
3 York 2,500
Total 13,500

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General Linear Programming
Notation and More Examples
(Slide 14 of 32)
•Illustration: Foster Generators (cont.): ORIGIN PLANT
THREE-MONTH PRODUCTION CAPACITY
(UNITS)
• The three-month forecast of demand for 1 Boston 6,000
the distribution centers:
2 Chicago 4,000
3 St. Louis 2,000
4 Lexington 1,500
Total 13,500

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 General Linear
Programming
Notation and More
Examples (Slide
15 of 32)
Figure 12.13: The Network
Representation of the Foster
Generators Transportation Problem

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General Linear Programming Notation and
More Examples (Slide 16 of 32)
Illustration: Foster Generators (cont.):
• Objective is to determine:
• Routes to be used.
• Quantity to be shipped via each route.
• Minimum total transportation cost.

Let xij = number of units shipped from origin i to destination j

where i  1, 2,  , m and j  1, 2,  , n.

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 General Linear
St.
Programming Origin Boston Chicago
Louis
Lexington
Notation and More
Cleveland 3 2 7 6
Examples (Slide
17 of 32) Bedford 6 5 2 3

York 2 5 4 5
Table 12.4: Transportation Cost Per
Unit for the Foster Generators
Transportation Problem ($)

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General Linear Programming Notation and
More Examples (Slide 18 of 32)
Illustration: Foster Generators (cont.):
• Supply constraints: x11  x12  x13  x14  5,000 Cleveland supply
x21  x22  x23  x24  6,000 Bedford supply
x31  x32  x33  x34  2,500 York supply

• Demand constraints: x11  x21  x31  6,000 Boston demand

x12  x22  x32  4,000 Chicago demand
x13  x23  x33  2,000 St. Louis demand
x14  x24  x34  1,500 Lexington demand

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 General Linear
Programming
Notation and More
Examples (Slide 19
of 32) • Illustration: Foster Generators (cont.):
• A 12-variable, 7-constraint linear programming formulation of the
Foster Generators transportation problem:

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 General Linear
Programming Notation
and More Examples
(Slide 20 of 32)

Figure 12.14: Spreadsheet Model and

Solution for the Foster Generator Problem

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 General Linear Programming Notation and More
Examples (Slide 21 of 32)

Maximizing Banner Ad Revenue

• Applications of linear programming to marketing include: advertising campaign mix, marketing
mix, and marketing research.
• Consider the Business, Science, and Sports sections of a large content publisher, MHT.
• MHT has contracts for banner ads with five companies: Nile, Zstart, Cheetah, Stride, and
Stove.
• Expected click-through rates for each advertiser by section of their web content is shown in
Table 12.5.

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General Linear Programming Notation and
More Examples (Slide 22 of 32)
Table 12.5: Data for the MHT Banner Ad Allocation Problem
Click-through rates
Section Nile Zstar Cheetah Stride Stove
Business 0.0155 0.0265 0.0100 0.0170 0.0105
Science 0.0165 0.0110 0.0125 0.0265 0.0125
Sports 0.0145 0.0235 0.0190 0.0225 0.0160
Ads Upper Limit 2,000,000 2,000,000 1,800,000 2,000,000 2,000,000

Contact Impression Limits

Nile Zstar Cheetah Stride Stove
Lower Limit 1,500,000 1,000,000 1,100,000 1,000,000 1,500,000
Ads Upper Limit 2,000,000 2,000,000 1,800,000 2,000,000 2,000,000

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 General Linear Programming Notation and More
Examples (Slide 23 of 32)

Maximizing Banner Ad Revenue

• For next Friday, MHT expects to have enough visitors to its website to guarantee
2,550,000 visitors to its Business section; 2,150,000 to its Science section; and
2,500,000 visitors to its Sports section.
• MHT receives $0.30 for each click-through achieved.
• Advertising planners need to determine, for next Friday, how to allocate impressions
for each of the five advertisers across the three sections of the MHT web site.
• A linear programming model can be used to maximize revenue.

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General Linear Programming Notation and
More Examples (Slide 24 of 32)
Maximizing Banner Ad Revenue
• The decision variable is as follows:

where: i = 1 is Business j =1 is Nile

i = 2 is Science j = 2 is Zstar
i = 3 is Sports j = 3 is Cheetah
j = 4 is Stride
j = 5 is Stove

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 •Maximizing Banner Ad Revenue
General Linear
• The objective function is to maximize expected revenue.
Programming Notation
• Expected revenue from the three sections:
and More Examples
(Slide 25 of 32)

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 •Maximizing Banner Ad Revenue
General Linear
• The objective function is the sum of the expected
Programming Notation revenues generated from the three sections:
and More Examples
(Slide 26 of 32)

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 •Maximizing Banner Ad Revenue
General Linear
• Since each section is limited to the number of
Programming Notation impressions that MHT can guarantee, we have the
and More Examples following impression availability constraints:
(Slide 27 of 32)

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General Linear Programming
Notation and More Examples
(Slide 28 of 32)

•Maximizing Banner Ad Revenue

• Combining the previous
information with a lower and
upper limit on impressions
received, we have the
following linear program
shown to the right.
• The spreadsheet model and an
optimal solution are shown in
Figure 12.15.

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General Linear Programming
Notation and More Examples
(Slide 29 of 32)
•Figure 12.15: A spreadsheet model and the
Solution to the MHT Banner Ad Problem

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 General Linear Programming Notation and More
Examples (Slide 30 of 32)

Maximizing Banner Ad Revenue

• The solution indicates that all available impressions should be used, and the resulting
revenue is $45,270.
• Nile impressions are split between the Business and Science sections.
• Stove impressions are split over the Science and Sports sections.
• Zstart, Cheetah, and Stride are allocated exclusively to the Business, Sports, and
Science sections, respectively.
• The sensitivity report for the MHT solution is shown in Figure 12.16.

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General Linear Programming
Notation and More Examples
(Slide 31 of 32)

•Figure 12.16: The Excel Sensitivity

Report for the MHT Banner Ad
Problem

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 General Linear Programming Notation and More
Examples (Slide 32 of 32)

Maximizing Banner Ad Revenue

• The Excel Solver Sensitivity Report can provide useful information about the
sensitivity of the optimal solution to changes in the model input.
• This type of classical sensitivity analysis is somewhat limited:
• Assumes that only one piece of input data has changed
• Assumes that all other parameters remain as stated in the original problem.
• The easiest way to examine the effect of simultaneous changes is to change the
parameters in the model and rerun the model.

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 Generating an Alternative Optimal
Solution for a Linear Program

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Generating an Alternative Optimal Solution
for a Linear Program (Slide 1 of 6)
Illustration: Consider the Foster Generators transportation problem:
• From Figure 12.14, the optimal solution:
x11  1000, x12  4000, x13  0, x14  0
x21  2500, x22  0, x23  2000, x24  1500
x31  2500, x32  0, x33  0, x34  0

• Optimal cost: $39,500.

• For the revised model to be optimal, the solution must give a total cost of
$39,500.

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Generating an Alternative Optimal Solution
for a Linear Program (Slide 2 of 6)
Illustration: Foster Generators (cont.):
• From Figure 12.14:
x13  x14  x22  x32  x33  x34  0

• If the sum of these variables is maximized and if the optimal objective

function value of the revised problem is positive.
• A different feasible solution that is also optimal is found.

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 Generating an
Alternative
Optimal Solution
for a Linear
Program (Slide 3 of
6) • Illustration: Foster Generators (cont.):
• Revised
model:

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 Generating an
Alternative Total Cost =
$39,500
Amount
Shipped
Optimal Solution To: Boston To: Chicago To: St. To: Lexington Total
for a Linear From:
Louis
0
Program (Slide 4 Cleveland 3,500 1,500 0 5,000

of 6) From:
Bedford 0 2,500 2,000
1,500
6,000
From: York 0
Table 12.6: An Alternative Optimal 2,500 0 0 2,500
Solution to the Foster Generators Total 1,500
Transportation Problem 6,000 4,000 2,000

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 Generating an Alternative Optimal Solution for a
Linear Program (Slide 5 of 6)

Illustration: Foster Generators (cont.):

• In the original solution (Figure 12.14):
• Boston distribution center is sourced from all three plants, whereas each of the other
distribution centers is sourced by one plant.
• The manager in Boston has to deal with three different plant managers, whereas each of the
other distribution center managers has only one plant manager.
• The alternative solution (Table 12.6) provides a more balanced solution:
• Managers in Boston and Chicago each deal with two plants, and those in St. Louis and
Lexington, which have lower total volumes, deal with only one plant.
• Because the alternative solution seems to be more equitable, it might be preferred.
• Both the solutions give a total cost of $39,500.

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 Generating an Alternative Optimal Solution for a
Linear Program (Slide 6 of 6)

• General approach to find an alternative optimal solution to a linear program:

• Step 1: Solve the linear program.
• Step 2: Make a new objective function to be maximized; It is the sum of
those variables that were equal to zero in the solution from Step 1.
• Step 3: Keep all the constraints from the original problem; add a constraint
that forces the original objective function to be equal to the optimal
objective function value from Step 1.
• Step 4: Solve the problem created in Steps 2 and 3; if the objective function
value is positive, an alternative optimal solution is found.

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 End of Chapter 12

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