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DECISION MAKING
AND MATHEMATICAL
OPTIMIZATION PROBLEMS
DECISION MAKING
• Consider the problem of a mall builder:
Conserva>ve:
- For a max problem: Maximin
- For a min problem: Mininmax
Strong demand Weak demand
Small complex 8 7
Medium 14 5
complex
Large complex 20 -9
Maximum Regret
Small complex 12
Medium complex 6
Large complex 16
• Maximizing expected value
- Assume the probability of strong demand is 80%.
Example:
Min C(x) subject to output constraint
b) Nonlinear programming - nonnega>vity constraints
and inequality constraints
g1(x) = gs(x1, ...., xn) ≤ b1
g2(x) = g2(x1, ...., xn) ≤ b2
.
.
gm(x) = gs(x1, ...., xn) ≤ bm
x1 ≥ 0, x2 ≥ 0, ...., xn ≥ 0
Example:
Max sales subject to profit constraint
c) Linear Programming - the objec>ve func>on is linear
and the constraints are linear inequality constraints and
nonnega>vity constraints
f(x) = c1x1 + c2x2 + .... + cnxn
subject to
a11 x1 + a12 x2 + .... + a1n xn ≤ b1
a21 x1 + a22 x2 + .... + a2n xn ≤ b2
.
.
am1 x1 + am2 x2 + .... + amn xn ≤ bm
x1 ≥ 0, x2 ≥ 0, ...., xn ≥ 0
a) Classical Programming
max U = xy subject to M = pxx + pyy
tangency solution
y
M = pxx + pyy
x
b) Nonlinear Programming
Max F(x1, x2) = -8x12 - 10x22 + 12x1x2 - 50x1 + 80x2
subject to x1 + x 2 ≤ 1
8x12 + x22 ≤ 2
x1 ≥ 0, x2 ≥ 0
x2
Boundary solution at (0, 1)
••
x1
x2
x1
Interior solution
c) Linear Programming
Max F = 3x1 + 2x2
subject to: 2x1 + x2 ≤ 6
x1 + 2x2 ≤ 8
x1 ≥ 0, x2 ≥ 0
x2
x1
x2
x1
Bounding face solution