LINEAR PROGRAMMING

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LINEAR PROGRAMMING
A technique that seeks to solve resource allocation problems using
the proportional relationships between two variables.
A mathematical technique for solving constrained maximization and
minimization problems when there are many constraints and the
objective function to be optimized, as well as the constraints faced,
are linear.

Ap pli cati ons of Li near

Progr ammiProc
1. Optimal ng ess S election
Given input prices and the quantity of the commodity that the firm wants to
produce, LP can be used to determine the optimal combination of processes
needed to produce the desired level and output at the lowest possible cost,
subject to labor, capital and other constraints that the firm may face.

1. Optimal Prod uct M ix

Most firms produce a variety of products rather than a single one and
must determine how to best use their plants, labor, and other inputs to
produce the combination or mix of products that maximizes their total
profits subject to the constraints they face.
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Continued… Ap pli cat io ns o f Linear Pro gr amm ing
1. Satis fying M inimu m Prod uct R eq uire me nts
Production often requires that certain minimum product requirements
be met at minimum cost. LP specifies the total cost function that the
manager seeks to minimize and the various constraints that he of she
must meet or satisfy.

1. Lon g- Ru n Cap ac ity Plan ning

Firms seek to answer how much contribution to production and profit each
unit of the various inputs make. If it exceeds the price of the input, total
profits would increase by hiring more of that input; if input is underused,
some of it need not be hired or purchased, or even can be sold.

1. Others
a. Least-cost route
b. Best combination of expense in advertising
c. Best routing of telephone calls
d. Best portfolio of securities
e. Best allocation of personnel, etc.
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De fini ti on of Te rms:
Prod ucti on Proces s – the activity through which the use of various
input combinations or ratios is undertaken; can be represented by
a straight line (ray) from the origin of the input space.
Fea sible Regi on – the area of attainable input combinations; along
which the best or optimal solution lies.
Objectiv e Fu ncti on – the function to be optimized; refers to either
profit maximization or cost minimization.
(I nequality) C ons tr aints – the level to which the firm can use up,
but not more than, specified quantities of some inputs; or to which
the firm must meet some minimum requirements.
Non -neg ati vi ty C ons tr aint – the measure that indicates that the
firm cannot produce negative output or use a negative quantity of
any input.
Deci sion Vari ables – the quantities of product to produce in order to
maximize profits or inputs to use to minimize costs.
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 Figure 1. The Firm’ s Prod uction Proc esse s and
Isoq uan ts

The left panel shows production Process 1 using K/L = 2, Process 2 using K/L = 1, and Process 3 using K/L = 1/2 that a
firm can use to produce a particular commodity. The right panel shows that 100 units of outputs (100Q) can be produced
with 6K and 3L (point A), 4K and 4L (point B), or 6L and 3K (point C). Joining these points, we get the isoquant for 100Q.
Because of constant returns to scale, using twice as many inputs along each production process (ray) results in twice as
much output. Joining such points, we get the isoquant for 200Q.

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 Figure 2. Fea sib le Region an d Optimal Solu tion
Picture 1

With isocost line GH in the left panel, the feasible region is shaded triangle 0JN, and the optimal solution is at
point E where the firm uses 8L and 8K and produces 200Q. The right panel shows that if the firm faces no
cost constraint but has available only 7L and 10K, the feasible region is shaded area 0RST and the optimal
solution is at point S where the firm produces 200Q. To reach point S, the firm produces 100Q with Process 1
(0A) and 100Q with Process 2 (0B = AS).

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PR OFIT M AXI MI ZATI O
N
Example.
FIRM-A produces only two products, Product X and Product Y. Each unit of
Product X contributes $30 to profit and to covering overhead (fixed)
costs, and each unit of Product Y contributes $40. Suppose further that in
order to produce each unit of Product s X and Y, the firm requires inputs
A, B, and C.

Table 1. Inp ut Requ ire ments and Avail ab il ity for

Producin g Pro du cts X and Y
Quant ities of Inp ut s Quant ities of
Req ui red per Inp ut s A vail ab le
Uni t of Out put_____ per T ime Peri od
Inp ut Pr od uc t X Prod uct Y Tot al
A 1 1 7
B 0.5 1 5
C 0 0.5 2

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Solution:
Step 1 Express objective function as an equation and the
constraints as inequalities.
∏ = $30QX + $40QY

Express the constraints of the problem as inequalities.

Input A: 1QX + 1QY ≤ 7
Input B: 0.5QX + 1QY ≤ 5
Input C: 0.5QY ≤ 2

Impose non-negativity constraints on the output of

Products X and Y.
QX ≥ 0 QY ≥ 0

Step 2 Graph the inequality constraints and define the feasible

region.

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Figure 3. Feas ib le Re gio n, Isopr ofit Li nes and Pr ofi t
Maxi miz at ion

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Step 3 Show the algebraic solution and results

At point D: where QY = 0
(Input A) 1QX + 1QY ≤ 7 substituting QY = 0
Thus: QX = 7 and QY = 0

At point E: where Qx = 4
(Input A) 1QX + 1QY = 7
(Input B) _0.5QX + 1QY = 5
0.5QX = 2 substituting Qx = 4

Thus: QX = 4 and QY = 3

At point F: where Qy = 4
(Input B) 0.5QX + 1QY = 5 substituting Qy = 4
(Input C) 0.5QY = 2
Thus: QX = 2 and QY = 4

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Step 3 – Continuation… (algebraic solutions and results)

Figure 4. Alg ebrai c De termi nat ion of the Corne rs

of the Feasi ble Re gion

The quantity of Products X and Y (QX and QY) at corner point D is obtained by substituting QY = 0 (along the QX
axis) into the constraint equation for input A. QX and QY at corner point E are obtained by solving simultaneously the
constraint equations for inputs A and B. QX and QY at point F are obtained by solving simultaneously the equations for
constraints B and C. Corner point G can be dismissed outright because it involves the same QY as at point F but has
QX = 0. The origin can also be dismissed since QX = QY = ∏ = 0.
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Step 3 – Continuation… (algebraic solutions and results)

Table 2. Outpu ts of Prod uct s X and Y, and Profits at

Ea ch C orner of th e Fea sib le Reg ion

Corn er QX QY $30Q X + $40Q Y Prof it

Poin t
0 0 0 $30 (0) + $40 (0) $0

D 7 0 $30 (7) + $40 (0) $210

E 4 3 $30 (4) + $40 (3) $240

F 2 4 $30 (2) + $40 (4) $220

G 0 4 $30 (0) + $40 (4) $160

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CO ST M IN IM I ZAT IO
N
Example.
Assume that the manager of a college dining hall is required to prepare meals that
satisfy daily requirements of protein (P), minerals (M), and vitamins (V). Suppose
that the minimum daily requirements that have been established at 14P, 10M, and
6V. The manager can use two basic foods (meat and fish) in the preparation of
meals. Meat (food X) contains 1P, 1M, and 1V per pound. Fish (food Y) contains 2P,
1M, and 0.5V per pound. The price of X is $2 per pound, and the price of fish is $3.

Table 3. Sum ma ry Data

Meat (Food X) Fish (Food Y)

Price per pound $2 $3

Units of Nutrients per Pound of Minimum Daily

Requirement
Nutrient Meat (Food X) Fish (Food Y) Total
Protein (P) 1 2 14
Minerals (M) 1 1 10
Vitamins (V) 1 0.5 6

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Solution:
Step 1: C = $2QX + $3QY (objective function)
1QX + 2QY ≥ 14 (protein constraint)
1QX + 1QY ≥ 10 (minerals constraint)
1QX + 0.5QY ≥ 6 (vitamins constraint)
QX, QY ≥ 0 (non-negativity constraint)

Step 2: Figure 5. Feas ibl e Re gion and Cos t Min im izati on

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14
Step 3:

Table 3. Us e of Food s X and Y, and Co sts at Ea ch

Corn er o f the Fe as ibl e Regi on

Corn er QX QY $2Q X + $3Q Y Cos t

Poin t
D 14 0 $2 (1 4) + $3 (0 ) $28

E 6 4 $2 (6 ) + $3 (0 ) $24

F 2 8 $2 (2 ) + $3 (8 ) $28

F 0 12 $2 (0 ) + $3 (1 2) $36

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LINEAR PROGRAM MING AND LOGIST ICS
IN THE GLOB AL ECONOMY
Logistics Management refers to the merging at the corporate
level of the purchasing, transportation, warehousing, distribution, and
customer services functions, rather than dealing with each of them
separately at division levels.

Fac tors That Le ad t o the Rapid Sp re ad of Log ist ics:

• Just-i n-Tim e Inv entor y Manag ement makes the buying of inputs
and the selling of the product much more tricky and more closely
integrated with all other functions of the firm.
• Incr eas in g Trend Tow ard s Global izati on of Pro du ction and
Dis tr ib ution . With production, distribution, marketing and financing
activities of the leading corporations scattered around the world, the
need for logistics management becomes even more important and
beneficial.

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LINEA R PRO GRAMMIN G:
THE U SE OF COMPU TER PROG RA M/S
Case
Name of Business: Maximus Computer Company (MCC)

Product/Share on Profit : Computers Net Profit

Starter $50
Midrange 120
Super 250
Extreme 300

Operations (Hours): Manufacture Assembly Inspection

Starter 0.1 0.2 0.1
Midrange 0.2 0.5 0.2
Super 0.7 0.25 0.3
Extreme 0.8 0.2 0.5
Total Hours per Day 250 350 150

Goal and Philosophy:

To ship computers with known-brand components and offer superior service, all
at a cost to consumers that is lower than that of the competition.

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Microsoft Excel SOLVER

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Othe r Comp ut er Sof tware :
LIN DO
GI PAL S
GU LF
LIPSOL
IMP S LP, et c.

Tutor ial Websites :

http://www.msubillings.edu/BusinessFaculty/Harris/LP_Problem1.htm
http://www.economicsnetwork.ac.uk/cheer/ch9_3/ch9_3p07.htm
http://fisher.osu.edu/~croxton_4/tutorial/

http://www.lehman.com/who/
http://www.guardian.co.uk/business/2008/sep/15/lehmanbrothers.creditcrunch
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 Maraming salamat po…

Sources: Principles of Managerial Economics (P. Keat, P. Young)

Managerial Economics in a Global Economy (D. Salvatore)
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