EcMatModelling (LP)

Economic and Mathematic Modeling, 2020/2021
LECTURE 4: OPTIMIZATION MODELS

Sergey Shvydun,
shvydun@hse.ru
23.09.2020
LECTURE 4: PLAN OF THE DAY Economic and Mathematic Modeling
1. Basic concepts of a static optimization problem. Instrumental variables, the objective

function. The global and local maxima. Sufficient condition for the existence of a
global maximum.
2. Formulation of the linear programming problem (LP). Some special linear
programming tasks (transport, production, etc.). Linear programming in MS Excel.
3. The DEA analysis (data envelopment analysis). The construction of the efficiency
frontier. Evaluating the effectiveness of firms, banks, and universities.
OPTIMIZATION Economic and Mathematic Modeling
• Optimization is an important and fascinating area of management science and

operations research. It helps to do less work, but gain more.
• There are many real-world applications that can be modeled as the optimization
problem;
• There are theoretically and practically efficient techniques for solving large-scale
problems.
EXAMPLE OF THE PROBLEM
• A company makes three products (say, А, В and С);
• There are two machines which can be used to produce the products.
• Costs and total number of produces items depend on the type of machine.
Productivity, items/day Costs, USD/day

Product
Machine #1 Machine #2 Machine #1 Machine #2
A 4 10 100 300
B 5 8 200 200
C 6 2 250 150
• There is an order for the production of 50 items of product A, 40 items of product B and
15 items of product C within next 10 days.
• How to organize the production of products to minimize the total cost?
4
• There are 5 workers which can be assigned to 5 jobs.
• Because each worker has different skills, the time required to perform a job depends on
the worker who is assigned to it.
Job #1 Job #2 Job #3 Job #4 Job #5
Worker 1 10 15 5 20 100
Worker 2 5 10 5 40 50
Worker 3 10 5 10 40 10
Worker 6 20 20 15 25 10
Worker 5 30 20 20 35 10
How to determine the optimum assignment that maximizes the team effectiveness?
5
• Consider bus scheduling problem. Each hour 𝑖 you can send 𝑥𝑖 to handle the transportation
needs.
• Each bus can operate 8 successive hours a day only;
• After gathering necessary information, you have noticed that the minimum number of
busses needed fluctuated with the time (𝑖 = 1, … , 10) which is equal to 𝑏𝑖 .
• Exceeding 𝑏𝑖 leads to additional costs during 𝑖 − 𝑡ℎ hour which are equal to 𝑐𝑖 for each extra
bus
𝑖 1 2 3 4 5 6 7 8 9 10
𝑏𝑖 10 15 20 25 30 20 30 15 10 5
𝑐𝑖 5 6 6 6 7 7 10 20 20 25
• How to organize the scheduling to minimize the total costs?
6
• The construction company is considering 7 projects for the construction of residential complexes.
• The company can implement one or several projects, but any project taken for execution must be
completed in full.
• The company has financial resources in the amount of 250 billion rubles and a workforce of 1,000
man-months.
Projects
Information
1 2 3 4 5 6 7
Workforce (man-months) 500 300 200 600 300 450 350
Financial costs (billion rubles) 20 20 40 35 45 40 35
Net profit (billion rubles) 25 20 25 30 40 30 40
• Which projects the company should choose to maximize the total profit?
7
• Anna decided to use the quarantine time to benefit her body. She chose a trendy diet
which consists of three foods: corn, milk, and bread.
• There are restrictions on the number of calories (between 2000 and 2250) and the
amount of Vitamin A (between 5000 and 50,000).
• The amount of Vitamin A in corn is 107, calories are equal to 72.
• The amount of Vitamin A in milk is 507, calories are equal to 121.
• The amount of Vitamin A in bread is 0, calories are equal to 65.
• Corn, milk and bread cost $1.8, $2 and $0.5.
How to select a set of foods that will satisfy a set of daily nutritional requirement at
minimum cost?
8
BASIC COMPONENTS OF OPTIMIZATION PROBLEMS
Each optimization problem consists of three elements:
• Decision variables: describe our choices that are under our control;
• Objective function: describes a criterion that we wish to minimize (e.g., cost) or
maximize (e.g., profit);
• Constraints: describe the limitations that restrict our choices for decision
variables.
9
FORMALIZATION OF THE OPTIMIZATION PROBLEM
1. Defining the decision variables:
– What we want to determine among those things which are under our
control?
2. Identifying the constraints:
– What are the limitations (such as resource / physical / strategic /
economical) that restrict our decisions?
3. Choosing an objective function:
– How to measure the quality of alternative solutions?
– How the function depends on decision variables?
10
DECISION VARIABLES
The proper definition of the decision variables is an essential first step in the development of
the model.
The decision variables 𝑥𝑖 may take on

• real values (𝑥𝑖 ∈ ℝ),
• integer values (𝑥𝑖 ∈ ℤ),
• positive integer values (𝑥𝑖 ∈ ℕ),
• binary values (𝑥𝑖 ∈ 𝔹 = {0, 1}).
In real problems, some variables can take on real values, others – integer/binary, etc. The set
of 𝑛 variables is usually denoted by 𝑥 = 𝑥1 , … , 𝑥𝑛 .
11
FEASIBLE SOLUTION
Feasible solution/set is the set of all possible points 𝑥 = 𝑥1 , … , 𝑥𝑛 (sets of values of the
decision variables) of an optimization problem that satisfy the problem's constraints, potentially
including inequalities, equalities, and integer constraints.
• Feasible solution is usually denoted by X. Thus, 𝑥 ∈ 𝑋 ⊆ ℝ 𝑛 .
• Constraints on the admissible values of the vector follow from the real problem and are
represented as a system of equalities and/or inequalities:
𝑔𝑗 𝑥1 , … , 𝑥𝑛 ≤ 𝑏𝑗 , 𝑗 = 1, … , 𝑚,
ℎ𝑘 𝑥1 , … , 𝑥𝑛 = 𝑑𝑘 , 𝑘 = 1, … , 𝑞
12
STANDARD FORM OF AN OPTIMIZATION PROBLEM
The standard form of a continuous optimization problem is:
 f ( x1 ,..., xn )  max по x1 ,..., xn :

 g ( x ,..., x )  b ,
 1 1 n 1
𝑓 𝑥 ⇒ max
 ......................... 𝑥
 g ( x ,..., x )  b , or (in vector form) 𝑔 𝑥 ≤𝑏
 m 1 n m
𝑥≥0
 x1 ,..., xn  0,
13
OPTIMIZATION PROBLEM TYPES
 f ( x1 ,..., xn )  max по x1 ,..., xn :
 g ( x ,..., x )  b ,
 1 1 n 1
 .........................
 g ( x ,..., x )  b ,
 m 1 n m
 x1 ,..., xn  0,
Depending on the type of objective function 𝑓 𝑥 and constraints 𝑔 𝑥 , the

optimization problem is related to:
• linear programming (LP);
• integer linear programming (ILP);
• linear-fractional programming (LFP);
• nonlinear programming (NLP).
14
• There three mill producing plants which produce daily 110, 190 and 90 tones of flour.
• There are four demand destination which require daily 80, 60, 170, 80 tones of flour.
• The cost of shipping of 1 tone from plant 𝑖 to demand destination 𝑗 is defined by matrix 𝑝𝑖𝑗 :
8 1 9 7
 
P  4 6 2 12  .
3 
 5 8 9
• The goal is to determine the optimum allocation of production capacity to each demand
destination to minimize the cost of shipping.
15
• The cost of shipping of 1 tone from plant 𝑖 to demand destination 𝑗 is defined by matrix 𝑝𝑖𝑗 :
8 1 9 7
 
P  4 6 2 12  .
3 
 5 8 9
• The goal is to determine the optimum allocation of production capacity to each demand
destination to minimize the cost of shipping.
• Decision varialbes хij (tones) – the amount (tones) to be shipped from mill producing plants i to
demand destination j. i=1,2,3, j=1,2,3,4.
16
• The cost of shipping of 1 tone from plant 𝑖 to demand destination 𝑗 is defined by matrix 𝑝_𝑖𝑗:
8 1 9 7 
 
P   4 6 2 12  .
3 5 8 9 
 
 f ( x)  8 x11  x12  9 x13  7 x14  4 x21  6 x22  2 x23  12 x24  3x31  5 x32  8 x33  9 x34  min,

 x11  x12  x13  x14  110,
 x21  x22  x23  x24  190,

 x31  x32  x33  x34  90,

 x11  x21  x31  80,
 x  x  x  60,
 12 22 32
 x13  x23  x33  170,

 x14  x24  x34  80,
 xij  0, i  1,...,3, j  1,..., 4,

17
OPTIMAL SOLUTION
An optimal solution is a feasible solution 𝑥 ∗ where the objective function reaches
its maximum value (e.g., profit):
∗ ∗
𝑥 ∈ 𝑋: ∀𝑥 ∈ 𝑋 𝑓 𝑥 ≥ 𝑓(𝑥)
If we consider the problem where the objective function is minimized (e.g. cost), the
optimal solution is defined as
𝑥 ∗ ∈ 𝑋: ∀𝑥 ∈ 𝑋 𝑓 𝑥 ∗ ≤ 𝑓(𝑥)
18
OPTIMAL SOLUTION
∗ ∗
The value of the maximum 𝑓 = 𝑓 𝑥 is always unique, which cannot be said about
solution ∗
𝑥 .
Optimal solution:
𝑋 ∗ = 𝑎𝑟𝑔𝑚𝑎𝑥𝑥∈𝑋 𝑓 𝑥 = 𝑥 ∗ ∈ 𝑋: ∀𝑥 ∈ 𝑋 𝑓 𝑥 ∗ ≥𝑓 𝑥 .
19
NO OPTIMAL SOLUTION: REASONS
1. The feasible set is empty, i.e.,. 𝑋 = ∅ ⇒ 𝑋 ∗ = ∅.
2. The feasible set is not empty but the objective function is unbounded.
20
NO OPTIMAL SOLUTION: REASONS
3. The feasible set is not empty, the objective function is bounded but the objective
function may or may not attain a maximum or minimum value.
21
EXISTENCE OF GLOBAL OPTIMA
Theorem (Weierstrass)
If the objective function 𝑓(𝑥) is continuous and the feasible region 𝑋 is closed and
bounded, then there exists a global optimum.
22
HOW TO SOLVE LP PROBLEMS?
1. Excel;
2. Graphically;
3. Using any programming language (Python, Matlab, R, etc.)
23
• Small plant produces both interior (I) and exterior paints (E);
• The paints are produced from three raw materials А, В и С.
• The maximum daily availability of materials are equal to 18, 16 и 21 tons.
• Information about how many materials (tons) are required to produce the paints are provided below.
I E
A 1 3
B 2 1
C 3 0
• A market survey indicated that the daily demand for exterior paint cannot exceed 5 tones.
• The prices are $2,000 for interior paint I and $3,000 for exterior paint Е.
• What is the best product mix of interior and exterior paints that maximized the total daily profit?
24
FORMULATION OF THE MODEL
I E
A 1 3
B 2 1
• C 3 0
𝑓 𝑥, 𝑦 = 2𝑥 + 3𝑦 → 𝑚𝑎𝑥
𝑥 + 3𝑦 ≤ 18,
2𝑥 + 𝑦 ≤ 16,
3𝑥 ≤ 21,
𝑦 ≤ 5,
𝑥, 𝑦 ≥ 0.
25
SOLUTION WITH EXCEL SOLVER
𝑓 𝑥, 𝑦 = 2𝑥 + 3𝑦 → 𝑚𝑎𝑥
𝑥 + 3𝑦 ≤ 18,
2𝑥 + 𝑦 ≤ 16,
3𝑥 ≤ 21,
𝑦 ≤ 5,
𝑥, 𝑦 ≥ 0.
26
27
28
GRAPHICAL SOLUTION OF LINEAR PROGRAMMING
• Draw the feasible set;

• Plot the gradient (of parallel lines) which represents the linear
function.
• Find the optimal solution.
29
I E
A 1 3
B 2 1
• C 3 0
𝑓 𝑥, 𝑦 = 2𝑥 + 3𝑦 → 𝑚𝑎𝑥
𝑥 + 3𝑦 ≤ 18,
2𝑥 + 𝑦 ≤ 16,
3𝑥 ≤ 21,
𝑦 ≤ 5,
𝑥, 𝑦 ≥ 0.
30
31
32
33
34
35
36
Feasible set
37
f=0
f=24
f=0
f=24 Optimal solution (6;4)
f=0
Question: Why do we need it?
41
ANOTHER EXAMPLE OF LP PROBLEM
Consider the following LP problem:
𝑓 𝑥, 𝑦 = 2𝑥 + 2𝑦 → 𝑚𝑎𝑥
𝑥+𝑦 ≤7
0≤𝑥≤5
0≤𝑦≤6
42
𝑓 𝑥, 𝑦 = 2𝑥 + 2𝑦 → 𝑚𝑎𝑥
𝑥+𝑦 ≤7
0≤𝑥≤5
0≤𝑦≤6
43
∗ ∗
Solution: 𝑓 𝑥, 𝑦 = 14, 𝑥 = 5, 𝑦 = 2.
44
GRAPHICAL SOLUTION
𝑓 𝑥, 𝑦 = 2𝑥 + 2𝑦 → 𝑚𝑎𝑥
𝑥+𝑦 ≤7
y 0≤𝑥≤5
7 0≤𝑦≤6
6
f=14
f=0 5 7 x
45
GRAPHICAL SOLUTION
𝑓 𝑥, 𝑦 = 2𝑥 + 2𝑦 → 𝑚𝑎𝑥
𝑥+𝑦 ≤7
y 0≤𝑥≤5
7 0≤𝑦≤6
6
f=14
∗ ∗ ∗
Solution: 𝑓 𝑥, 𝑦 = 14, 𝑥 ∈ 1,5 , 𝑦 = 7 − 𝑥 .
f=0 5 7 x
46
THE FUNDAMENTAL THEOREM OF LINEAR PROGRAMMING
“If there is a solution to a linear programming problem, then it will occur at an

extreme point, or on a line segment between two corner points”.
47
SIMPLEX METHOD
The simplex method uses an approach that is very efficient. It does not compute the value of the objective
function at every point.
Main steps:
1. it begins with a corner point of the feasibility region where all the main variables are zero;
2. then systematically moves from corner point to corner point, while improving the value of the objective
function at each stage;
3. The process continues until the optimal solution is found.
𝑛
Worst-case complexity: 𝑂(2 )
48
SIMPLEX METHOD
𝑓 𝑥, 𝑦 = 2𝑥 + 2𝑦 → 𝑚𝑎𝑥
𝑥+𝑦 ≤7
y 0≤𝑥≤5
7 0≤𝑦≤6
6
f=14
Solution: 𝑓 𝑥, 𝑦 = 14, 𝑥 ∗ = 5, 𝑦 ∗ = 2.
f=0 5 7 x
49
EXERCISE
A delivery company requires different numbers of employees on different days of the week.
Each employee must work five consecutive days and then receive two days off. In the
following table, the number of employees required on each day of the week is specified.
Day Monday Tuesday Wednesday Thursday Friday Saturday Sunday

Number of
employees 17 13 15 19 14 16 11
required
What is the minimal number of employees needed to satisfy the needs of the delivery
company?
50
SENSITIVITY ANALYSIS
51
In real application the parameters of the problem are not exact.
For instance,
• The company can purchase some additional resources at the expense of
existing financial reserves;
• There is some uncertainty in the data (e.g. demand);
• The prices for manufactured products can also be changed in a certain range.
The parameters of the model can change within certain limits without causing the
∗ ∗ ∗
optimal solution to change. However, in some cases the solution 𝑥 = (𝑥1 , … , 𝑥𝑛 )
can be completely different.
52
Example:
53
SENSITIVITY ANALYSIS: EXAMPLE
I E
A 1 3
B 2 1
• C 3 0
𝑓 𝑥, 𝑦 = 2𝑥 + 3𝑦 → 𝑚𝑎𝑥
𝑥 + 3𝑦 ≤ 18,
2𝑥 + 𝑦 ≤ 16,
3𝑥 ≤ 21,
𝑦 ≤ 5,
𝑥, 𝑦 ≥ 0.
54
GRAPHICAL SOLUTION
f=24 Optimal solution (6;4)
f=0
SENSITIVITY ANALYSIS: CHANGES IN PRICES
Assume the price of paint I is changed and it is now equal to a.
𝑓 𝑥, 𝑦 = 𝑎𝑥 + 3𝑦 → 𝑚𝑎𝑥
𝑥 + 3𝑦 ≤ 18,
2𝑥 + 𝑦 ≤ 16,
3𝑥 ≤ 21,
𝑦 ≤ 5,
𝑥, 𝑦 ≥ 0.
Feasible set
56
Case 1: 𝑎 = 0:
𝑓 𝑥, 𝑦 = 0𝑥 + 3𝑦 → 𝑚𝑎𝑥
𝑥 + 3𝑦 ≤ 18,
2𝑥 + 𝑦 ≤ 16,
3𝑥 ≤ 21,
𝑦 ≤ 5,
𝑥, 𝑦 ≥ 0.
Feasible set
57
Case 1: 𝑎 = 0:
𝑓 𝑥, 𝑦 = 0𝑥 + 3𝑦 → 𝑚𝑎𝑥
𝑥 + 3𝑦 ≤ 18,
2𝑥 + 𝑦 ≤ 16,
3𝑥 ≤ 21,
𝑦 ≤ 5,
𝑥, 𝑦 ≥ 0.
Feasible set
f=0
58
Case 1: 𝑎 = 0:
𝑓 𝑥, 𝑦 = 0𝑥 + 3𝑦 → 𝑚𝑎𝑥
𝑥 + 3𝑦 ≤ 18,
2𝑥 + 𝑦 ≤ 16,
3𝑥 ≤ 21,
𝑦 ≤ 5,
𝑥, 𝑦 ≥ 0.
Feasible set f = 15
f=0
59
Case 1: 𝑎 = 0:
𝑓 𝑥, 𝑦 = 0𝑥 + 3𝑦 → 𝑚𝑎𝑥 (3, 5)
𝑥 + 3𝑦 ≤ 18,
2𝑥 + 𝑦 ≤ 16,
3𝑥 ≤ 21,
𝑦 ≤ 5,
𝑥, 𝑦 ≥ 0.
Feasible set f = 15
∗
Solution: 𝑦 = 5, 𝑥 ∈ 0, 3 . f = 0
60
Case 2: 𝑎 > 0:
𝑥 + 3𝑦 ≤ 18,
2𝑥 + 𝑦 ≤ 16,
3𝑥 ≤ 21,
𝑦 ≤ 5,
𝑥, 𝑦 ≥ 0.
Feasible set
61
Case 2: 𝑎 > 0:
𝑥 + 3𝑦 ≤ 18,
2𝑥 + 𝑦 ≤ 16,
3𝑥 ≤ 21,
𝑦 ≤ 5,
𝑥, 𝑦 ≥ 0.
Feasible set
62
Case 2: 𝑎 > 0:
𝑥 + 3𝑦 ≤ 18,
2𝑥 + 𝑦 ≤ 16,
3𝑥 ≤ 21,
𝑦 ≤ 5,
𝑥, 𝑦 ≥ 0.
∗ ∗ Feasible set
Solution: 𝑦 = 5, 𝑥 = 3.
При 𝑎 ∈ (0,1)
63
Case 3: 𝑎 = 1:
𝑓 𝑥, 𝑦 = 1𝑥 + 3𝑦 → 𝑚𝑎𝑥
𝑥 + 3𝑦 ≤ 18,
2𝑥 + 𝑦 ≤ 16,
3𝑥 ≤ 21,
𝑦 ≤ 5,
(6, 4)
𝑥, 𝑦 ≥ 0.
∗ Feasible set
Solution: 𝑥 ∈ [3,6],
𝑦 ∗ = 18 − ∗
𝑥 .
64
Case 4: 𝑎 > 1:
𝑥 + 3𝑦 ≤ 18,
2𝑥 + 𝑦 ≤ 16,
3𝑥 ≤ 21,
𝑦 ≤ 5,
(6, 4)
𝑥, 𝑦 ≥ 0.
∗ Feasible set
Solution: 𝑥 = 6,
𝑦 ∗ = 4, if 𝑎 ∈ (1,6)
65
Case 5: 𝑎 = 6:
𝑓 𝑥, 𝑦 = 6𝑥 + 3𝑦 → 𝑚𝑎𝑥
𝑥 + 3𝑦 ≤ 18,
2𝑥 + 𝑦 ≤ 16,
3𝑥 ≤ 21,
𝑦 ≤ 5,
(7, 2)
𝑥, 𝑦 ≥ 0.
∗ Feasible set
Solution: 𝑥 ∈ [6,7],
𝑦 ∗ = 16 − ∗
2𝑥 .
66
Case 6: 𝑎 > 6:
𝑥 + 3𝑦 ≤ 18,
2𝑥 + 𝑦 ≤ 16,
3𝑥 ≤ 21,
𝑦 ≤ 5,
(7, 2)
𝑥, 𝑦 ≥ 0.
∗ Feasible set
Solution: 𝑥 = 7,
𝑦 ∗ = 2.
67
SENSITIVITY ANALYSIS: CAPACITY CHANGES
What if the capacity of material A is changes?
𝑓 𝑥, 𝑦 = 2𝑥 + 3𝑦 → 𝑚𝑎𝑥
𝑥 + 3𝑦 ≤ 𝑎,
2𝑥 + 𝑦 ≤ 16,
3𝑥 ≤ 21,
𝑦 ≤ 5,
𝑥, 𝑦 ≥ 0.
Feasible set
68
What if we have uncertainty in data?
 n
  ci x i  max
 i 1
 n
  a ji x i  b j , j  1,..., m,
 i 1
c  [ c , c ], i  1,..., n,
 i i i
b j  [ b j , b j ],

 a ij  [ a ij , a ij ],
 x  0.
 i
69
DATA ENVELOPMENT ANALYSIS (DEA)
WHAT EFFICIENCY IS?
“Obtaining the maximum output for given inputs.”
A Dictionary of Economics, John Black 2020
71
BASIC MODEL
Input 1 Output 1
Input 2
Object Output 2
Input 3 Output 3
How to evaluate the efficiency of the object?

72
BASIC MODEL: EXAMPLE
Full time teaching faculty Graduate and post

graduate students
Full time doctoral faculty
Total library books

University Undergraduate students
Average grade of students

Total computers
73
BASIC MODEL: EXAMPLE
Salary Profit
Number of Employees Stock Price
Investments
Company Number of customers
Number of orders
74
APPLICATION OF DEA
• Banks;
• Businesses;
• Universities;
• Hospitals;
• Investment projects;
• Country Regions;
• Staff;
• etc.
75
SIMPLE MODEL
Input (Resources) Output (Production)

Object
76
SIMPLE MODEL
Object
Company Resources Production
1 100 200
2 200 300
3 400 1000
4 200 250
How to evaluate the efficiency of the companies?

77
SIMPLE MODEL
Company Resources Production Company Production Efficiency

/Resources
1 100 200 0.8
1 200/100=2
2 200 300 0.6
2 300/200=1.5
3 400 1000 1
3 1000/400=2.5
4 200 250 0.5
4 250/200=1.25
78
SIMPLE MODEL
Efficiency frontier

1 100 200
Production
2 200 300
3 400 1000
4 200 250
Resources
79
DEA MODEL
Input 1 Output 1
Input 2
Object Output 2
Input 3 Output 3
How to evaluate the efficiency of the object?

80
DEA MODEL
𝑀
𝑢 𝑦
𝑖=1 𝑖 𝑖𝑘
𝑒𝑘 = 𝑁
𝑗=1 𝑣𝑗 𝑥𝑗𝑘
• 𝑒𝑘 – efficiency of company k;
• 𝑢𝑖 , 𝑣𝑗 – the importance of input and output parameters;
• 𝑥𝑖𝑘 – input parameters of company k;
• 𝑦𝑗𝑘 – output parameters of company k;
• 𝑀 – number of output parameters; 𝑁 – number of input parameters;
81
DEA MODEL: EFFICIENCY OF OBJECTS
Efficiency of object k:
𝑀
𝑢 𝑦
𝑖=1 𝑖 𝑖𝑘
max 𝑒𝑘 = 𝑁
𝑢𝑖 ,𝑣𝑗
𝑗=1 𝑣𝑗 𝑥𝑗𝑘
𝑀
𝑖=1 𝑢𝑖 𝑦𝑖𝑘
𝑁 ≤ 1, 𝑘 = 1, … , 𝑅
𝑣 𝑥
𝑗=1 𝑗 𝑗𝑘
𝑢𝑖 > 0 ∀𝑖
𝑣𝑗 > 0 ∀𝑗
82
SIMPLE MODEL
Object
1 100 200
2 200 300
3 400 1000
4 200 250

83
DEA MODEL: EFFICIENCY OF COMPANY 1
Company 1
𝑢1 ∗ 200
≤1
𝑣1 ∗ 100
𝑢1 ∗ 300
≤1
𝑣1 ∗ 200
𝑢1 ∗ 200
max 𝑒1 = subject to 𝑢1 ∗ 1000 ⇒ 𝑢1 = 1; 𝑣1 = 2.5; 𝑒1 = 0.8
𝑢1 ,𝑣1 𝑣1 ∗ 100 ≤1
𝑣1 ∗ 400
𝑢1 ∗ 250
≤1
𝑣1 ∗ 200
𝑢𝟏 > 0, 𝑣𝟏 > 0
84
Company 2
𝑢1 ∗ 200
≤1
𝑣1 ∗ 100
𝑢1 ∗ 300
≤1
𝑣1 ∗ 200
𝑢1 ∗ 300
max 𝑒1 = при 𝑢1 ∗ 1000 ⇒ 𝑢1 = 1; 𝑣1 = 2.5; 𝑒2 = 0.6
𝑢1 ,𝑣1 𝑣1 ∗ 200 ≤1
𝑣1 ∗ 400
𝑢1 ∗ 250
≤1
𝑣1 ∗ 200
𝑢𝟏 > 0, 𝑣𝟏 > 0
85
DEA MODEL
Object
Company Resource 1 Resource 2 Production
1 100 150 200
2 200 100 300
3 400 450 1000
4 200 350 250

86
Company 1
𝑢1 ∗ 200
≤1
𝑣1 ∗ 100 + 𝑣2 ∗ 150
𝑢1 ∗ 300
≤1
𝑣1 ∗ 200 + 𝑣2 ∗ 100
𝑢1 ∗ 200
max при 𝑢1 ∗ 1000
𝑢𝑖 ,𝑣𝑗 𝑣1 ∗ 100 + 𝑣2 ∗ 150 ≤1
𝑣1 ∗ 400 + 𝑣2 ∗ 450
𝑢1 ∗ 250
≤1
𝑣1 ∗ 200 + 𝑣2 ∗ 350
𝑢𝟏 > 0, 𝑣𝟏 > 0
⇒ 𝑢1 = 0.71; 𝑣1 = 1.79; 𝑣2 = 0.01; 𝑒1 = 0,8
87
Company 2
𝑢1 ∗ 200
≤1
𝑣1 ∗ 100 + 𝑣2 ∗ 150
𝑢1 ∗ 300
≤1
𝑣1 ∗ 200 + 𝑣2 ∗ 100
𝑢1 ∗ 300
max при 𝑢1 ∗ 1000
𝑢𝑖 ,𝑣𝑗 𝑣1 ∗ 200 + 𝑣2 ∗ 100 ≤1
𝑣1 ∗ 400 + 𝑣2 ∗ 450
𝑢1 ∗ 250
≤1
𝑣1 ∗ 200 + 𝑣2 ∗ 350
𝑢𝟏 > 0, 𝑣𝟏 > 0
⇒ 𝑢1 = 2.28; 𝑣1 = 1.596; 𝑣2 = 3.649; 𝑒2 = 1,0
88
DEA MODEL: EXCEL
Object
Company Resource 1 Resource 2 Production
1 100 150 200
2 200 100 300
3 400 450 1000
4 200 350 250

89
DEA MODEL
Object
Company Resource 1 Resource 2 Production Efficiency
1 100 150 200 0.8
2 200 100 300 1
3 400 450 1000 1
4 200 350 250 0.5

90
DEA MODEL
91
CONCLUSION
• Data envelopment analysis (DEA) is one of the most popular techniques for the
efficiency assessment of different objects with several inputs and outputs.
• DEA allows to evaluate the efficiency of objects where it is difficult to asses the
importance of parameters.
92
HOME ASSIGNMENT
Home assignment: should be done by students individually or in groups (up to 4 students).
1. Select an optimization problem which you want to solve. Introduce the reader to the
importance of the topic being studied. Provide a link to the source of all parameter
values of your model (prices, product characteristics, profit, etc.). The uniqueness and
originality of the work is encouraged and shall be considered;
2. Present the mathematical formulation of the model (decision variables, constraints,
objective function). Explain your objective function and all constraints.
3. Solve your optimization problem and present the main results.
4. Make a conclusion of your work;
5. Write a report of your work and your findings and send it to LMS system.
Deadline: October 7, 2020 23:59:59 (2 weeks)
93
Thank you!

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Economic and Mathematic Modeling, 2020/2021

LECTURE 4: OPTIMIZATION MODELS

1. Basic concepts of a static optimization problem. Instrumental variables, the objective

• Optimization is an important and fascinating area of management science and

Productivity, items/day Costs, USD/day

• How to organize the scheduling to minimize the total costs?

The decision variables 𝑥𝑖 may take on

 f ( x1 ,..., xn )  max по x1 ,..., xn :

Depending on the type of objective function 𝑓 𝑥 and constraints 𝑔 𝑥 , the

• Draw the feasible set;

f=24 Optimal solution (6;4)

Question: Why do we need it?

“If there is a solution to a linear programming problem, then it will occur at an

Day Monday Tuesday Wednesday Thursday Friday Saturday Sunday

f=24 Optimal solution (6;4)

“Obtaining the maximum output for given inputs.”

A Dictionary of Economics, John Black 2020

How to evaluate the efficiency of the object?

Full time teaching faculty Graduate and post

Full time doctoral faculty

Total library books

Average grade of students

Number of Employees Stock Price

Input (Resources) Output (Production)

How to evaluate the efficiency of the companies?

Company Resources Production Company Production Efficiency

Company Resources Production

How to evaluate the efficiency of the object?

How to evaluate the efficiency of the companies?

How to evaluate the efficiency of the companies?

How to evaluate the efficiency of the companies?

How to evaluate the efficiency of the companies?

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