Assignment 1

DISC 322: Optimization

Instructor: Kamran Rashid
Name: Mirza Ameen Hyder
Roll No.: 19110262

I testify that this is my original work!

_____________________________
Definition of Variables
Xi represents the amount of ith product made. Where I = 1, 2, 3 for product 1, product 2 and
product 3 respectively.
Di represents the deficient or excess amount of constraint being utilized as compared to the
goal. Where i= 1, 2, 3 for profit, employment level and capital investment.

Formulation:
Minimize: D1 + D2 + D3  Minimize the penalties associated with amount of
constraint utilized other than the goal amount.
Subject to:
12X1 + 9X2 + 15X3 + D1 = 125 (Profit Constraint)
5X1 + 3X2 + 4X3 + D2 = 40 (Employment Constraint)
5X1 + 7X2 + 8X3 + D3 = 55 (Investment Constraint)
Xi ≥ 0 (where i = 1, 2, 3)
Di is URS (where i = 1, 2, 3)

Penalties Incorporation in the model:

Profit:
Penalty of 5 for missing the profit goal per $1 million under.
Employment:
Penalty of 2 for going over the employment level (per 100 employees) and 4 for going under
the same goal.
Capital Investment:
3 for exceeding capital investment goal per $1 million over.

- -
Now let Di = Di+ - Di where Di+ ≥ 0 and Di ≥ 0

The modified LP will be now:

Minimize:
-
5D1+ + 4D2+ + 2D2 + 3D3
-
 -
Subject to: 12X1 + 9X2 + 15X3 + D1+ - D1 = 125

-
5X1 + 3X2 + 4X3 + D2+ - D2 = 40

5X1 + 7X2 + 8X3 + D3+ - D3 = 55

-

Xi ≥ 0 (where i = 1, 2, 3)

-
Di+ ≥ 0 and Di ≥ 0 (where i = 1, 2, 3)

Excel Solution:

Objective Funtion Co-efficients

X1 X2 X3 D1+ D1- D2+ D2- D3+ D3-
Co-effecients 0 0 0 5 0 4 2 0 3
Values of Dec. Var's 8.333 0 1.667 0 0 0 8.333 0 0

Minimize 16.67

Constraints
X1 X2 X3 D1+ D1- D2+ D2- D3+ D3- UtilizedGoal
Profit 12 9 15 1 1 0 0 0 0 125 125
Employment 5 3 4 0 0 1 1 0 0 40 40
Capital 5 7 8 0 0 0 0 1 1 55 55

The overall penalty after finding the optimal solution of the problem is 16.67 which has been
came out by over utilizing the employment level by 8 (approx.) which mean almost 800
employees are over used than the set goal. The Profit and Capital has been used utilized exactly
according to the set goal for their respective constraints which means that they are binding
constraints. Product 2 has not been produced with product 1 and product 3 being produced by
9 and 2 (approx.) at the optimal state. (Since we have not covered the integer linear
programming problems in the class that’s why I have not added the integer constraint in the
initial problem)
Sensitivity Report:
Variable Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$C$5 Values of Dec. Var's X1 8.333333333 0 0 0.6 3.6
$D$5 Values of Dec. Var's X2 0 6.857142857 0 1E+30 6.857142857
$E$5 Values of Dec. Var's X3 1.666666667 0 0 3.692307692 0.75
$F$5 Values of Dec. Var's D1+ 0 3.095238095 5 1E+30 3.095238095
$G$5 Values of Dec. Var's D1- 0 1.904761905 0 1E+30 1.904761905
$H$5 Values of Dec. Var's D2+ 0 6 4 1E+30 6
$I$5 Values of Dec. Var's D2- 8.333333333 0 2 0.333333333 2
$J$5 Values of Dec. Var's D3+ 0 2.571428571 0 1E+30 2.571428571
$K$5 Values of Dec. Var's D3- 0 0.428571429 3 1E+30 0.428571429

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$M$11 Profit Utilized 125 1.904761905 125 7 8.75
$M$12 Employment Utilized 40 -2 40 8.333333333 1E+30
$M$13 Capital Utilized 55 -2.571428571 55 6.481481481 2.916666667

In the Variable Cell there is no Allowable Increase or Decrease equal to 0 which means there
exist no other optimal solution hence there are no multiple optimal solutions.
Reduced cost for Variables X2 is 6.85 which means at the current optimal state if we produce
one unit of X2 then it will increase the penalty by 6.85 and the overall penalty will become
23.52 (16.67 + 6.85)
Reduced Cost for X1, X2 and D2- is 0 which shows that they are basic variables at the optimal
state.
Shadow Price for Employment is -2 which shows that either we have to increase the
employment level by 8.33 more to minimize the penalty of 16.67 to 0 or utilize exactly 40 units
of employment level that would decrease the objective function value by 2 at one unit decrease
in the utilization of employment level.
If capital is increased by one unit then the penalty will further be minimized by 2.57 until the
overall increase in the capital is within 6.481 units.
Whereas Shadow Price of Profit is positive which shows that on further increase in thevalue of
RHS of profit the penalty would increase by 1.9 until the increase is in the range of (0,7). Hence
setting higher goal for profit will not serve the purpose of minimization until the increase is
within the range.