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Math2070 and Math2970

Optimisation and Financial Mathematics:


Assignment Problems (term 2, year 2014)
Lecturer: A. Papanicolaou
Due: 5.00pm Thursday 4th September.
MATH2070: Do Questions 14 (not 5). Formulate Questions 13 as LP problems. Solve Question 1 graphically
and Questions 24 using the simplex algorithm. Do Question 2 by hand. Use the MATLAB commands from the
labs (not the linprog command) to do Questions 3 and 4. The computer printout of your computing solutions
must contain the banner indicating your username. Any errors and blank lines should be edited out. You have
the option to use the MATLAB commands from the labs (not the linprog command) to do Questions 2, 3
and 4. If typing your solution: copy the tableaus that Matlab outputs and paste them into your report, and be
sure to type full sentences explaining each step (except for question #4 which doesnt require explanation). If
writing/computing your solutions by hand, be sure to write explanations for #2 and #3. Submit your folder
(wallet style preferred) in the correct box opposite the lifts on Carslaw Level 6.
MATH2970: Do Questions 13 & 5 (not 4). Follow the same instructions.
1. A tea company sells tea under a blue ribbon label and an economy label. Both are blended from
three basic grades of tea:
Blue Ribbon = 50%A + 30%B + 20%C
Economy = 25%A + 30%B + 45%C
The market prices are $800/tonne for blue ribbon and $650/tonne for economy. One week the rm is given
the option of buying up to 110 tonnes of grade A at $700/tonne, 130 tonnes of grade B at $600/tonne
and 220 tonnes of grade C at $400/tonne. Calculate the prot per tonne of each blend of tea. How much
of each blend should the company produce to maximize its prot (not gross but net returns) and what is
the maximum prot?
2. A small manufacturing company produces three products, A, B and C at its plant. The parts of each
product must be manufactured, the products are then assembled and nally the nished products packaged
for distribution to wholesalers. Each unit of product A takes 5 hours to manufacture, 2 hours to assemble
and 1 hour to package. The corresponding times for product B are 2
1
2
hours, 1 hour and 40 minutes, and
for product C, 4
1
2
hours, 1
1
2
hours and 40 minutes. The manufacturer has up to 300 hours of manufacturing
time per week using skilled labour, 110 hours of assembling time, which uses semi-skilled labour, and 60
hours of packaging time which uses unskilled labour. If the prots per unit A, B and C are $110, $60 and
$90, respectively, how many units of each product should the manufacturer produce, assuming all product
can be sold?
3. A farming company owns two farms, which dier in the growing of crops and their yields. Each farm has
100 acres available for cropping and 11,000 bushels of wheat and 5000 bushels of corn must be grown.
Farm A yields 400 bushels of wheat per acre at a cost of $95 per acre and 500 bushels of corn per acre at
a cost of $100 per acre. Farm B yields 350 bushels of wheat per acre at a cost of $85 per acre and 650
bushels of corn per acre at a cost of $120 per acre. How should the crops be planted to minimise the cost?
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4. (MATH2070 only.) Formulate the dual problem of the primal in Question 1. Solve the dual problem of
Question 1 and compare your answer with the primal problem.
5. (MATH2970 only.) A best approximate solution to an inconsistent set of m equations in n unknowns,
n

j=1
a
ij
x
j
= b
i
, i = 1, . . . , m,
can be found by minimising the sum of the absolute errors,
m

i=1

b
i

j=1
a
ij
x
j

,
with respect to x
k
, k = 1, . . . , n. This L
1
-approximation optimisation problem is equivalent to the
following LP problem with n + m decision variables x
j
, j = 1, . . . , n, and e
i
, i = 1, . . . , m.
Minimise z =
m

j=1
e
j
subject to e
i
+
n

j=1
a
ij
x
j
b
i
, i = 1, . . . , m;
e
i

j=1
a
ij
x
j
b
i
, i = 1, . . . , m.
(a) Write down the dual problem using dual variables y
i
, i = 1, . . . , m, for the rst m constraints and
w
i
, i = 1, . . . , m, for the last m constraints. Show by eliminating the w
i
that the dual problem can
be simplied to
Maximise v =
m

i=1
b
i
y
i
subject to
m

i=1
a
ij
y
i
=
1
2
m

i=1
a
ij
, j = 1, . . . , n;
0 y
i
1 , i = 1, . . . , m.
(b) Use the result of Part(a) to t a straight line of the form y = ax +b to the six points data points in
the (x, y)-plane given by (2, 2), (1, 2), (1, 5), (2, 14), (3, 10), (5, 15) by minimising the sum of the
absolute errors at the six points (i.e. use L
1
curve-tting). Formulate the simplied dual LP problem
of Part (a) for this curve-tting problem and solve it using the MATLAB command linprog. (The
decision variables m and b of the primal problem are given by -lambda.eqlin use the command
in the form
[x,fval,exitflag,output,lambda] = linprog(f,[],[],Aeq,beq,lb,ub,...
[],optimset(Display,iter,LargeScale,off,Simplex,on));
For further details on using the command use help linprog in MATLAB or go to the website
http://www.mathworks.com.au/help/optim/ug/linprog.html
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(c) Using the same data points from part (b), t another line that minimises the sum of squared errors,
m

i=1

b
i

j=1
a
ij
x
j

2
.
Use Matlabs backslash command \ with help le here
http://www.mathworks.com.au/help/matlab/ref/mldivide.html
Plot the data points and both of the straight lines you obtained in the same gure. Which point is
the outlier? Which line is less eected by the outlier, and hence a better t? Use a plot to show
what happens to the lines if you add 25 to the y-component of the outlier? Which tting method is
robust to the outlier?
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