This is the second laboratory of the Batch Planning and Resource Allocation course of the Management of the digital enterprise masters program

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This is the second laboratory of the Batch Planning and Resource Allocation course of the Management of the digital enterprise masters program

© All Rights Reserved

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Application 2

AN LP PROBLEM AND ITS DUAL: GEOMETRIC APPROACH, SIGNIFICANCES OF DUAL VARIABLES

AS SHADOW PRICES

Example 2. Some theoretical properties of LP models: Duality, geometry of LP, extreme points and a nave approach

in solving an LP problem.

Consider a linear programming model P and its dual D:

P: maximize x1 x2

subject to x1 2 x2 6

x1 x2 3

x1 , x2 0

D: minimize 61 3 2

subject to 1 2 1

21 2 1

1 , 2 0

P : max c T x

D : min T b

Ax b, x 0

AT c , 0

i.e.

The feasible set defined by the constraints of P can be represented as in Fig.1.

x1 = 0

D

x1x2=3

x2

C

A

x2 = 0

x1+2x2=6

x1

F

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Con. V.E.Oltean. BPRA: Application 2: An LP problem and its dual: significances of dual variables as shadow prices

2/9

A convex set S R n is characterized by x, y S , x (1 ) y S , (0, 1) .

S CONVEX

y

x

=1

=0

S NOT CONVEX y

x

=1

=0

graph is convex.

Very important! 1) If S is convex and f is convex any local extreme of f is also global on S.

2) The feasible set of a LP is convex.

3) A linear function is both convex and concave (objective function in LP !!!)

Extreme points of the feasible set. The optimum of P is between the extreme points of the feasible set, i.e. at a

corner of the feasible set. More formally: Given S convex, x S is an extreme point if whenever x y (1 ) z ,

for y, z S and (0, 1) , then x y z , i.e. x is not in the interior of any line segment.

The optimum is searched between the extreme points of the feasible set

Algorithm for solving LP (nave!)

Input: The feasible set and the objective function f

Output: The optimal extreme point x * (so that f ( x*)

min

x extreme point

f ( x) )

2. Pick the best one.

Remark. This is not a good approach, as shown in the optimization course, basically because of the

computational complexity. Details, later! Remind the simplex algorithm.

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Con. V.E.Oltean. BPRA: Application 2: An LP problem and its dual: significances of dual variables as shadow prices

3/9

The nave approach for solving P is, however, instructive! Rewrite P and D with slack variables, i.e.

in P: Ax b Ax z b , z 0 , and in D: AT c AT v c , v 0 , hence

D: minimize 61 3 2

subject to 1 2 v1 1

21 2 v2 1

1 , 2 0 , v1 , v2 0

P: maximize x1 x2

subject to x1 2 x2 z1 6

x1 x2 z 2 3

x1 , x2 0 , z1 , z 2 0

1 = 0

x1 = 0

D

z2=0

x2

Ax b

A

C

E

B

x1

v2=0

x2 = 0

z1=0

A

F

AT c

2 = 0

D E

1

v1=0

_________________________________________________________________________________________________________________________

Con. V.E.Oltean. BPRA: Application 2: An LP problem and its dual: significances of dual variables as shadow prices

4/9

x1

x2

z1

z2

P: C

D

E

F

0 3

0 3 12

0 3

v1

v2

0 2

0 23 13

0 12

0 1 3

0

D: C

D 1 2

E

0

F

2

In conclusion:

P: maximize x1 x2

subject to x1 2 x 2 6

x1 x 2 3

x1 , x2 0

x2

i.e.

P : max c T x

Ax b, x 0

Geometric representation:

x1 = 0

3

cTx* = 5

c

x1x2 = 3

C (4,1)

x2 = 0

x1+2x2 = 6

x1

3

_________________________________________________________________________________________________________________________

Con. V.E.Oltean. BPRA: Application 2: An LP problem and its dual: significances of dual variables as shadow prices

5/9

and:

the feasibility set X { x R 2 : ( x1 2 x 2 6) ( x1 x 2 3)} is a convex polyhedron resulted from the

intersection of two halfplanes (i.e. 2-dimensional halfspaces) restricted to the first quadrant and

the optimum, or the problem value, in this case the maximal value of the function f ( x) c T x x1 x 2 ,

for x X is reached at a vertex of the polyhedron.

Note also that geometrically, increasing the value of the objective function f ( x ) c T x means that the

line c T x d , with d real parameter, evolves in the plane, starting from the origin (where d 0 ), in the

direction of its normal c [1 1]T , till it reaches the vertex C (4,1) , where d f ( x*) 5 .

Greater explanation concerning the search of optimum solutions and the properties of feasible values is given

later ! Recall now, briefly (see the Optimization lectures)) that a basic solution of Ax b is a solution with at

least n m 2 2 zero variables (all solutions are basic) and C is also feasible in both cases, because:

P: x1C 4 0 and x2C 1 0 ,

D: 1C 2 3 0 and 2C 1 3 0

hence it is optimal.

( In fact, it will be detailed later that sufficient optimality comes from:

1) xC x * is feasible for P, C * is feasible for D and

2) they satisfy complementary slackness: xCi vi 0 , Ci zi 0 , i 1,2 . )

_________________________________________________________________________________________________________________________

Con. V.E.Oltean. BPRA: Application 2: An LP problem and its dual: significances of dual variables as shadow prices

6/9

Economic problem: Given

P : max f ( x ) c T x

D : min T b

Ax b, x 0

AT c , 0

the vector b (b1 b2 )T signifies the upper bound for the resources (or goods) used to produce the quantities x with

optimal profit contribution (see Example 1).

PROBLEM: How does the optimal value of the objective function f (x*) vary when b varies, i.e. when the available

production resources vary?

Geometrically: The point C will change its coordinates, which now depend on b.

x1 = 0

D

z2=0

x2

Ax b

A

C

E

x2 = 0

z1=0

x1

F

x 4

b 3

In the original problem, b 1 , x* 1C and the optimal program is f ( x*) 4 1 5 .

b2 6

x 2C 1

_________________________________________________________________________________________________________________________

Con. V.E.Oltean. BPRA: Application 2: An LP problem and its dual: significances of dual variables as shadow prices

7/9

Now b b and, as a result, x * (b) x * (b ) What is the variation of f ( x * (b)) , i.e. the sensitivity of the

solution with resources variation ?

The simplest approach is the geometrical one. The coordinates of C, - which is the intersection of the lines z1 0 and

z 2 0 - satisfy the algebraic system:

x1 2 x2 b1

x1 x2 b2

b1 2b2

*

x1C x1

2b b

3

f ( x * (b)) x1* x2* 1 2 .

b b

3

x2C x2* 1 2

3

4

Remark. Recall that to the initial optimal variables x* xC (where C {z1 0} {z2 0} )

1

2 3

correspond, in D, the dual variables * C (in the dual plane, C {v1 0} {v2 0} )!

1 3

Compute :

f ( x * (b)) 2 * f ( x * (b)) 1 *

1 ,

2

b1

3

b2

3

Economic interpretation: The optimal dual variables * give the variation speed of the optimal program f (x*)

with the upper bound b of the constraints. These optimal dual variables are also called

SHADOW PRICES or

LAGRANGE MULTIPLIERS

A short explanation for the last term (general explanation later, in the chapter dedicated to Lagrangian methods!)

_________________________________________________________________________________________________________________________

Con. V.E.Oltean. BPRA: Application 2: An LP problem and its dual: significances of dual variables as shadow prices

8/9

Conclusion. Economic interpretation for

Economic problem: Given

P : max f ( x ) c T x

D : min T b

Ax b, x 0

AT c , 0

i.e. * b f ( x * (b)) , when b b

_________________________________________________________________________________________________________________________

Con. V.E.Oltean. BPRA: Application 2: An LP problem and its dual: significances of dual variables as shadow prices

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