Problem Statement.

A farmer owns 10 acres of land that he wishes to cultivate with wheat and alfalfa. He also
owns a small cow shed capable of housing 15 dairy cows. It takes 0.1 acre to produce 10
bushels of wheat and half a ton of straw. The production of 1 ton of alfalfa requires 0.05 acre
of land (irrigated and multiple cuts per year). Alfalfa and straw are entirely destined to be
used by the dairy cows. During a year, every cow produces 20,000 pounds of milk and
requires 15 tons of alfalfa and 3 tons of straw. Wheat can be sold at $5 per bushel and milk at
$0.15 per pound. Of course, the farmer wants to maximize sales revenue.
Research Objective
1. To produce economic interpretation of the dual problem
Research Background
The task is to interpret the description of the problem, to set up the corresponding primal
linear programming specification, to show all the problem’s coefficients in a tableau, to write
down the corresponding dual problem, and finally, to give an economic interpretation of each
component, including the objective function and the constraints.
Methodology
The strategy for setting up a linear programming problem interpretation is outlined:

1. Read the description of the problem very carefully while identifying by name the
activities of the problem.
2. Identify by name the constraints of the problem.
3. Identify the measurement units of both activities and constraints.
4. Identify the technical coefficients and their measurement units relating an activity to a
constraint
5. Set up the appropriate relations (inequalities, equations) among activities and constraints
consumption + investment ≤ production + availability
demand ≤ supply.
6. Use the constraints and activities classification and the Demand ≤ Supply relation to
organize the given information according to the economic principle that, indeed, Demand
≤ Supply for any commodity.
7. Rewrite the primal LP problem in algebraic form by regrouping all the variables
(unknowns) on one side of the (“≤”) relation and all constant parameters on the other side.
8. Use the Transposition Rule to write down the corresponding dual problem.
9. Eliminate any negative sign in the constraints of the dual problem and interpret each
constraint as the Marginal Cost ≥ Marginal Revenue for the given commodity.

Results & Analysis

Economic Interpretation of constraints.

The analyzed of the dual problem as a whole and in its various components can be
interpreted. Based on our observation through dual problem, the farmer wishes to minimize
the imputed cost of the limiting resources that make up the farm subject to the equilibrium
conditions expressed by the requirement that, for each line of production, the marginal cost is
greater than or equal to the corresponding marginal revenue. An important economic lesson
to be derived from studying the dual problem is that it is not convenient for the farmer to
overvalue his farm land because maximizing the value of productive resources is not an
equilibrium condition. If the unit value of land, the shadow price of it, is too high, the
marginal cost of those products utilizing that resource will also be too high and will
erroneously indicate to the farmer that producing those outputs is not profitable. Other
farmers will soon realize what is going on with their neighbor and will enter into a bid to
acquire the farm. They clearly wish to pay the minimum amount of dollars for that farm and,
therefore, they will offer prices for the land and the cow shed that will minimize the total cost
of buying the farm. This is the fundamental reason why it is not convenient for the farm
operator to overvalue his resources.

The economic interpretation of the dual constraints is based upon the general scheme
that Marginal Cost ≥ Marginal Revenue, but it is instructive to be able to apply this
framework to each individual constraint.

Constraint 1:
0.1 y 1 ≥ 50+0.5 y 4

The dual variable y 4 is the value of each unit of straw destined for the dairy cows. Hence, the
marginal cost of the wheat activity that utilizes only land ( 0.1 y 1) must be greater than or
equal to the marginal revenue of wheat grain (50) plus the marginal value product of the
wheat activity in terms of straw (0.5 y 4 ). In other words, revenue from the wheat activity is
made up of direct revenue from wheat grain plus the indirect revenue from wheat straw
utilized for producing milk.

Constraint 2:
y 2 +15 y 3+ 3 y 4 ≥ 3000
The marginal cost of milk (measured in cow units) is given by the left-hand side of the
constraint, since y 2 is the marginal cost of one stall in the cow shed, 15 y 3 is the marginal cost
of alfalfa, and 3 y 4 is the marginal cost of straw. The combined marginal cost of milk, then,
must be greater than or equal to the marginal revenue of milk derived from one cow ($3,000).

Constraint 3:
0.05 y 1 ≥ y 3

The dual variable y 3is the imputed value of each unit of alfalfa destined for the dairy cows.
Hence, the marginal cost of land destined for alfalfa production must be at least as large as
the value marginal product of alfalfa.

Economic Interpretation of objective function.

The optimal production plan recommends allocating the available 10 acres of land between
wheat and alfalfa for the production of 444.444 bushels of grain, 22.222 tons of straw, and
111.111 tons of alfalfa hay.

Given the input land coefficients for wheat (0.1) and alfalfa (0.05), the allocation
suggests that 4.4444 (0.1×44.444) acres of land be destined for wheat and 5.5556
(0.05×111.111) acres for alfalfa. With those amounts of alfalfa and straw producible with this
plan, it is possible to feed and raise 7.4074 cows with 7.5926 unused stalls in the cow shed.
The level of revenue achievable with this production plan is given by the primal objective
function:

maximize revenue = revenue from wheat grain + revenue from milk

¿ $ ( 50 ) × 44.444+ [ $ ( 3000 ) ×7.4074 ]
¿ $ 24 , 444.4
The optimal dual solution indicates that the shadow price of an acre of land ( y 1) is
$2,444.44, the shadow price of a ton of alfalfa hay ( y 3) is $122.22, and that of a ton of straw (
y 4 ) is $388.89. The shadow price of a stall in the cow shed ( y 2) is equal to $0 because some
of the initially available stalls remain vacant under the optimal production plan. The level of
the dual objective function:

Dual minimize = 10 y 1+ 15 y 2
¿ 10 ( $ 2 , 444.44 ) +15(0)
 ¿ $ 24 , 444.4
The levels of the primal and dual objective functions are the same, although they are
computed with two different sets of numbers. It is possible to obtain the cost of alfalfa
($122.222×111.111 = $13,580.21) and that of straw ($388.889×22.222 = $8, 641.89). The
total cost of raising the number of cows specified by the plan is $22, 222.1 = $13, 580.21 +
$8, 641.89, which is equal to the revenue obtained from selling the milk produced by those
cows ($22, 222.22 = $3, 000 ×7.4074).