INTRODUCTION TO OPTIMIZATION:

LINEAR PROGRAMMING
 Optimization Problems
Primarily concerned with either allocation of
limited resources in best possible manner;
Determining the level at which some activity
must be performed so that it is best for the
organization; and so on

Essentially, making decisions such that a given

objective is achieved in the best possible
manner while satisfying conditions imposed by
internal or external environment of the
organization
 An Example: Product Mix Problem
Gias woodcarving manufactures two types of wooden toys: soldiers and
trains. A soldier sells for $27 and uses $10 worth of raw materials. Each
soldier that is manufactured increases Gias variable labour and overhead
costs by $14.

A train sells for $21 and uses $9 worth of raw materials. Each train built
increases Gias variable labour and overhead costs by $10.

Each soldiers requires 2 hours of finishing and 1 hour of carpentry labour

and each train requires 1 hour of finishing and 1 hour of carpentry labour.

Each week Gia can obtain all the needed raw material but only 100
finishing hours and 80 carpentry hours. Demand for trains is unlimited,
but at most 40 soldiers are bought each week.

If Gia wants to maximize her weekly profit, how many soldiers and trains
should she produce every week?
Product Mix Problem: Summary Data
Soldier Train Available
Selling Price $27 $21
Raw Material Cost $10 $9
Variable Labour and Overhead Cost $14 $10

Finishing Hours 2 1 100

Carpentry Hours 1 1 80
Demand 40 unlimited
Product Mix Problem: Summary Data
Soldier Train Available
Selling Price $27 $21
Raw Material Cost $10 $9
Variable Labour and Overhead Cost $14 $10
Contribution to Profit $3 $2
Finishing Hours 2 1 100
Carpentry Hours 1 1 80
Demand 40 unlimited
 Product Mix Problem
Decision to be made
Number of soldiers to be produced per week
Number of trains to be produced per week

Objective
To maximize weekly profit

To ensure viability
Number of hours used for manufacturing in finishing
and carpentry department must NOT be more than the
number of hours available
Number of soldiers produced must NOT be more than
the demand
Product Mix Problem: Optimization Model
Decision to be made

Variables
Decision
Number of soldiers to be produced per week
Number of trains to be produced per week

Objective

Objective
Function
To maximize weekly profit

To ensure viability
Number of hours used for manufacturing in finishing
and carpentry department must NOT be more than the

Constraints
number of hours available
Number of soldiers produced must NOT be more than
the demand
Linear Programming Problem (LPP)
Decision Variables
X1: #soldiers to be produced per week
X2: #trains to be produced per week

Linear in decision variables!

Objective Function
Z = maximize 3X1+ 2X2

Constraints
2X1+1X2 <= 100 Finishing Hours Constraint
1X1+1X2 <= 80 Carpentry Hours Constraint
X1 <= 40 Soldiers Demand Constraint
X1 >= 0, X2 >= 0 non-negativity constraints
 Solving LPP
Graphical Methods
Applicable for 2-variable problems
Simplex Method
Matrix based
Interior Point Method

For routine real life managerial problems

MS Excel Solver
Other advanced solver packages such as LINDO,
LINGO, IBM ILOG, GAMS etc.