c

Anton, Inc has P100,000 available for

investment and must decide how much of this
is to be invested in each of the three available
alternatives: stock A, stock B, and bond X
Stock A is priced at P50 per share and is
expected to return P10 per share in annual
dividends. Although this return is high, stock A
is also considered risky. Stock B is priced at
P25 per share and returns P3 per share. Bond
X is quoted at P200 with an annual return of
9 percent.
 Anton has decided to limit its investment
in the riskier stock A to a maximum of one-
fourth of its total investment. For every share
of stock A purchased, Anton will purchase at
least three shares of stock B. There are a
maximum of 250 bonds available to Anton at
the stated price. Anton also stipulates that
the total investment in bonds must be at least
as great as half of its investment in stocks.
How do you recommend that Anton invest
its funds?
Suggested definition of the decision variables:

Let x1 = number of shares of stock A to

purchase
x2 = number of shares of stock B to
purchase
x3 = number of bonds X to purchase
 vax: Z = 10x1 + 3x2 + 18x3

Subject to:
1. 50x1 + 25x2 + 200x3 ` 100,000

2. 50x1 ` 0.25(50x1 + 25x2 + 200x3)

3. x2 3x1

4. 200x3 0.5(50x1 + 25x2)

5. x1, x2, x3 0
Öonstraint (1) {50x1 + 25x2 + 200x3 ` 100,000}

This is the budget constraint as discussed

above.

Öonstraint (2) {50x1 ` 0.25(50x1 + 25x2 + 200x3)}

This constraint limits the total investment

in stock A (which is 50x1 pesos to one-
fourth (0.25) the total investment
[(50x1 + 25x2 + 200x3) pesos ].
Öonstraint (3) {x2 3x1}

This constraint states that the total number

of shares of stock B (x2) must be at least
as great as three times of the total number
of shares of stock A (x1).

Öonstraint (4) {200x3 0.5(50x1 + 25x2)}

This constraint expresses the fact that,

since there are only 250 bonds available
to Anton, the number of bonds it decides
to purchase cannot exceed that amount.
Öonstraint (4) {200x3 0.5(50x1 + 25x2)}

This constraint states that the total

investment in bonds (200x2 pesos)
must be at least as great as one-half
(0.50) its total investment in stocks,
which is (50x1 + 25x2) pesos for
stocks A and B combined.
 ˜
c
c

Òsage of the following:

Slack variable, ˜
fills the gap between left

and right members of the equation.
- unused quantity, therefore , it does
contribute to any profit, hence, the
coefficient in the objective is zero
Artificial Variable,  - contributes the
biggest amount to costs, therefore
in the objective it has a coefficient
greater than any of the coefficients
of solution variables.
For convenience, use a quantity in
powers of 10.
Ex: 10, 100, 1000, 10,000
 ˜
c

 
c

1. Add a slack variable (S) to the left member

of the constraint containing _
`
symbols.

2. For a symbol of the constraint, convert

it first to a ` symbol by multiplying the
constraint by -1, then add the slack
variable.
Example:

vaximize: Z = 10x1 + 8x2

Subject to:
30x1 + 20x2 ` 120

2x1 + 2x2 ` 9

4x1 + 6x2 ` 24

x1, x2 0
New Program

vaximize: Z = 10x1 + 8x2 + 0S1 + 0S2 + 0S3

Subject to:
30x1 + 20x2 + S1 = 120

2x1 + 2x2 + S2 = 9

4x1 + 6x2 + S3 = 24

x1, x2, S1, S2, S3 0

 contribution optimum column
Öj to profit entering T1
10 8 0 0 0 variable
Solution Solution
x1 x2 S1 S2 S3
Variables Quantity

0 S1 30 20 1 0 0 120

0 S2 pivot 2 2 0 1 0 9

0 S3 4 6 0 0 1 24

outgoing Zj 0 0 0 0 0 0
variable pivotal
Öj - Zj 10 8 0 0 0 row
Öj T2
10 8 0 0 0

Solution Solution
x1 x2 S1 S2 S3
Variables Quantity

10 x1 1 2/3 1/30 0 0 4

0 S2 0 2/3 -2/30 1 0 1

0 S3 0 10/3 -4/30 0 1 8

Zj 10 20/3 10/30 0 0 40

Öj - Zj 0 4/3 -10/30 0 0
Öj
T3
10 8 0 0 0

Solution Solution
x1 x2 S1 S2 S3
Variables Quantity

10 x1 1 0 1/10 -1 0 3

8 x2 0 1 -1/10 3/2 0 3/2

0 S3 0 0 6/30 -5 1 3

Zj 10 8 2/10 2 0 42

Öj - Zj 0 0 -2/10 -2 0

 

X = 3

X = 3/2

vax Value = 42
 ˜
c

 
c

1. Add an artificial variable (A) if the symbol

of the constraint is =.

2. Add a slack variable (S) if the symbol is `.

3. Subtract a slack variable and add artificial

variable if .
c 

vinimize: Z = 6x + 16y
Subject to:
x + y = 400
x ` 150
y 200
x, y 0
New Program

vinimize: Z = 6x + 16y + 0S1 + 0S2 + 100A1 + 100A2

Subject to:
x + y + A1 = 400
x + S1 = 150
y - S2 + A2 = 200
x, y, S1, S2 0
 T1
Öj
6 16 0 0 100 100

Solution Solution
x y S1 S2 A1 A2
Variables Quantity

100 A1 1 1 0 0 1 0 400

0 S1 1 0 1 0 0 0 150

100 A2 0 1 0 -1 0 1 200

Zj 100 200 0 -100 100 100 60,000

Öj - Zj -94 -184 0 100 0 0

 T2
Öj
6 16 0 0 100 100

Solution Solution
x y S1 S2 A1 A2
Variables Quantity

100 A1 1 0 0 1 1 -1 200

0 S1 1 0 1 0 0 0 150

16 y 0 1 0 -1 0 1 200

Zj 100 16 0 84 100 -84 23,200

Öj - Zj -94 0 0 -84 0 184

 T3
Öj
6 16 0 0 100 100

Solution Solution
x y S1 S2 A1 A2
Variables Quantity

100 A1 0 0 -1 1 1 -1 50

6 x 1 0 1 0 0 0 150

16 y 0 1 0 -1 0 1 200

Zj 6 16 -94 84 100 -84 9,100

Öj - Zj 0 0 94 -84 0 184
 T4
Öj
6 16 0 0 100 100

Solution Solution
x y S1 S2 A1 A2
Variables Quantity

0 S2 0 0 -1 1 1 -1 50

6 x 1 0 1 0 0 0 150

16 y 0 1 -1 0 1 0 250

Zj 6 16 -10 0 16 0 4,900

Öj - Zj 0 0 10 0 84 100

 

X = 150

y = 250

Z = 4,900 (minimum value)