Exercises on Integer programming formulations

1. Fixed charge problem: A company manufactures three different products: A, B and C. The per-
unit profit margins for the three products are Rs. 60, Rs 100 and Rs. 50. The products could be
manufactured using one of the two processes. The per-unit production requirements for each
product for each process is given in the following table:

Per-unit production requirements

Process Product A Product B Product C Total Hrs per week
Process 1 4 hours 6 hours 3 hours 2000
Process 2 5 hours 7 hours 4 hours 2400

The demand for product A is predicted to be between 50 and 100 units per week, demand for
product B is predicted to be within 150 and 200 units per week and demand for product C is
within 100 and 150 units per week.

If the company decides to use process 1, it will incur a setup cost of Rs. 1000 and the setup will
take 24 hours. If the company decides to use process 2, it will incur a setup cost of Rs. 800 and
the setup will take 18 hours. Determine the production schedule that will maximize the profits
for the company and also determine which of the two processes should be utilized?
2. Set Covering problem: A telecommunications company is considering expanding its cable and
internet service operations into a new area. The area is divided into 10 neighbourhoods. The
company is considering 7 location nodes to reach all 10 neighbourhoods. Of course, it costs a
significant amount of money to open a node or make a node operational. The company would
like to minimize total cost but at the same time reach all of the neighbourhoods. The cost of
opening a node differs based on the characteristics of the land and the technical aspects of
setting up a node.

The costs of opening seven nodes are as follows:

Node 1 Node 2 Node 3 Node 4 Node 5 Node 6 Node 7
125 85 70 60 90 100 110

The seven nodes can reach or provide internet/cable coverage to the following areas:
Node 1: Neighbourhoods 1, 3, 4, 6, 9, 10
Node 2: Neighbourhoods 2, 4, 6, 8
Node 3: Neighbourhoods 1, 2, 5
Node 4: Neighbourhoods 3, 6, 7, 10
Node 5: Neighbourhoods 2, 3, 7, 9
Node 6: Neighbourhoods 4, 5, 8, 10
Node 7: Neighbourhoods 1, 5, 7, 8, 9
Determine which nodes should be opened to provide coverage to all neighbourhoods at a
minimum cost?
3. Capital budgeting problem (1): Five projects are being evaluated over a 3-year planning horizon.
The following table gives the expected returns for each project and the associated yearly
expenditure.
Expenditures (million $/yr)
Project 1 2 3 Returns (million $/yr)
1 5 1 8 20
2 4 7 10 40
3 3 9 2 20
4 7 4 1 15
5 8 6 10 30
Available funds 25 25 25
Projects 1 & 2 are mutually exclusive in nature. Which projects should be selected over the 3-
year planning horizon?
 4. Capital budgeting problem (2): XYZ construction company has an opportunity to build five
shopping malls during the next year. The expected net profit and expected cost for each of the
shopping malls are shown in the following table:

Table: The expected net profit and expected net cost

Shopping mall Expected net profit ($000) Expected cost ($000)

1 200 150
2 150 90
3 140 50
4 125 80
5 180 100

The company has a budget of $300,000 for the construction of shopping malls during the next year. Also
due to various legal restrictions and marketing considerations, the following relationships among the
projects must be met.

i. Exactly one of the shopping malls 1, 2 and 5 must be constructed.

ii. At most only one of the two shopping malls 1 and 4 may be constructed.
iii. Shopping mall 5 is only constructed, when shopping mall 4 is constructed.