Exercise 1

1. India Lab manufactures mechanical heart valves from the heart valves of pigs. Different heart operations
require valves of different sizes. India Lab purchases pig valves from three different suppliers. The cost
and the size mix of the valves from each supplier are given in Table 1. Each month, India Labs places one
order with each supplier. At least 500 large, 300 medium and 300 valves must be purchased each
month. Because of limited availability of pig valves, at most 700 valves per month can be purchased
from each supplier. Formulate an LP that can be used to minimize the cost of acquiring the needed
valves.

Table 1

Cost per Percent Percent Percent

Supplier Valve ($) Large Medium Small
1 5 40 40 20
2 4 30 35 35
3 3 20 20 60

2. A call center requires different number of full-time employees on different days of the week. The
number of full-time employees required on each day is given in Table 2. Employment rules state that
each full-time employee must work five days consecutively and then receive two days off. The call
center wants to meet its daily requirements using only full-time employees. Formulate an LP that the
call center can use to minimize the number of full-time employees who must be hired.
Table 2

Number of Full-Time
Day Employees Required
1 = Monday 17
2 = Tuesday 13
3 = Wednesday 15
4 = Thursday 19
5 = Friday 14
6 = Saturday 16
7 = Sunday 11

3. Indian Oil Company is considering five different investment opportunities. The cash outflows and net
present values (in millions of $s) are given in Table 3. Indian Oil has $40 million available for investment
now (time 0); it estimates that one year from now (time 1) $20 million will be available for investment.
Indian Oil may purchase any fraction of each investment. In this case, the cash outflows and NPV are
adjustexd accordingly. Indian Oil wants to maximize the NPV that can be obtained by investing in
investments 1-5. Formulate an LP that will help achieve this goal. Assume that any funds left over at
time 0 cannot be used at time 1.
 Table 3

Investment ($)
1 2 3 4 5
Time 0 cash
outflow 11 53 5 5 29
Time 1 cash
outflow 3 6 5 1 34
NPV 13 16 16 14 39

4. A small electronics company manufactures two electronic Instruments: A and B. The per unit labor costs
and, raw material costs, and selling price of each product is shown in Table 4.
Table 4

Cost Information
for the Company
Electronic Electronic
Instrument A Instrument B
Selling Price $100.00 $90.00
Labor Cost $50.00 $35.00
Raw Material Cost $30.00 $40.00

On December 1, 2014, the company has enough raw materials that are sufficient to manufacture 100
electronic instruments A and 100 electronic instruments B. On the same date, the company’s balance
sheet is as shown in the Table 5.
Table 5

Balance Sheet
Assets Liabilities
Cash $10,000.00
Accounts
Receivables $3,000.00
Inventory
Outstanding $7,000.00
Bank Loan $10,000.00

Demand is large enough to ensure that all the goods produced will be sold. All sales are on credit,
however, and payments for goods produced in December will not be received until February 1, 2015.
During December the company collects $2,000 in accounts receivable. The company must pay-off
$1,000 of the outstanding loan and a monthly rent of $1,000. On January 1, 2015, the company will
receive a shipment of raw materials worth $2,000, which will be paid for on February 1, 2015. The
company management has decided that the cash balance on January 1, 2015 must be at least $4,000.
Also, the company’s bank requires that the current ratio at the beginning of January be at least 2.
Formulate an LP.
5. Reliance manufactures three types of gasoline (gas 1, gas 2, and gas 3). Each type is produced by
blending three types of crude oil (crude 1, crude 2, and crude 3). The sales price per barrel of gasoline
and the purchase price per barrel of crude oil are given in Table 6. Reliance can purchase up to 5,000
barrels of each type of crude oil daily. The three types of gasoline differ in their octane rating and sulfur
content. The crude oil blended to form gas 1 must have an average octane rating of at least 10 and
contains at most 1% sulfur. The crude oil blended to form gas 2 must have an average octane rating of
at least 8 and contains at most 2% sulfur. The crude oil blended to form gas 3 must have an average
octane rating of at least 6 and contains at most 1% sulfur. The octane rating and sulfur content of the
three types of oil are given in Table 7. It costs $4 to transform one barrel of oil into one barrel of
gasoline, and reliance’s refinery can produce up to 14,000 barrels of gasoline daily.
Reliance’s customers require the following amounts of each gasoline: gas 1 – 3,000 barrels per day, gas
2 – 2,000 barrels per day and gas 3 – 1,000 barrels per day. The company considers it as an obligation to
meet these demands. Reliance also has the option of advertising to stimulate demand for its products.
Each dollar spent daily for that type of gas increases the daily demand by 10 barrels. Formulate and LP.
Table 6

Gas and Crude Oil Prices for Blending

Sales Price Purchase
per Barrel Price per
Gas ($) Crude Barrel ($)
1 70 1 45
2 60 2 35
3 50 3 25
Table 7

Octane Sulphur
Crude Rating Content (%)
1 12 0.5
2 6 2
3 8 3

6. A cosmetic company manufactures Brute and Chanelle perfumes. The raw material needed to
manufacture each type of perfume can be purchased for $3 per pound. Processing 1 lb of raw material
requires 1 hour of laboratory time. Each pound of processed raw material yields 3 oz of Regular Brute
Perfume and 4 oz of Regular Chanelle Perfume. Regular Brute can be sold for $7/oz and Regular
Chanelle for $6/oz. The company also has the option of further processing Regular Brute and Regular
Chanelle to produce Luxury Brute, sold at $18/oz and Luxury Chanelle sold at $14/oz. Each ounce of
Regular Brute processed further requires an additional 3 hours of laboratory time and $4 processing cost
and yields 1 oz of Luxury Brute. Each ounce of Regular Chanelle processed further requires an additional
2 hours of laboratory time and $4 processing cost and yields 1 oz of Luxury Chanelle. Each year,
company has 6,000 hours of laboratory time available and can purchase up to 4,000 lb of raw materials.
Formulate an LP.
7. Crompton Greaves must determine how many refrigerators should be produced during each of the next
four quarter. The demand during each of the next four quarter is as follows: first quarter, 40
refrigerators; second quarter, 60 refrigerators; third quarter, 75 refrigerators; fourth quarter, 25
refrigerators. Crompton must meet demands on time. At the beginning of the first quarter, Crompton
has an inventory of 10 refrigerators. At the beginning of each quarter, Crompton must decide how many
refrigerators should be produced during each quarter. For simplicity, we can assume that refrigerators
manufactured during a quarter can be used to meet demand for that quarter. During each quarter,
Crompton can produce up to 40 refrigerators with regular-time labor at a total cost of $400 per
refrigerator. By having employees worked overtime during a quarter, Crompton can produce additional
refrigerators with overtime labor at a total cost of $450 per refrigerator. At the end of each quarter,
(after production has occurred and the current quarter’s demand has been satisfied), a carrying or
holding cost of $20 per refrigerator is incurred. Formulate an LP.

8. Angel Broking Financial Corporation must determine investment strategy for the firm during the next
three years. Currently (time 0), $100,000 is available for investment. Investments A, B, C, D, and E are
available. The cash flow associated with investing $1 in each investment is given in Table 8. To ensure
that the company’s portfolio is diversified, Angel requires that at most $75,000 be placed in any single
investment. In addition to investments A-E, the company can earn interest at 8% per year by keeping
un-invested cash in money market funds. Returns from investments may be immediately re-invested.
Formulate an LP to maximize cash on-hand at time 3.
Table 8

Cash Flow ($) at Time

0 1 2 3
A -1 0.5 1 0
B 0 -1 0.5 1
C -1 1.2 0 0
D -1 0 0 1.9
E 0 0 -1 1.5

9. CSL is a chain of computer service stores. The number of hours of skilled repair time that CSL requires
during the next five months is as follows:
Month 1 (January): 6,000 hours
Month 2 (February): 7,000 hours
Month 3 (March): 8,000 hours
Month 4 (April): 9,500 hours
Month 5 (May): 11,000 hours
At the beginning of January, 50 skilled technicians work for CSL. Each skilled technician can work up to
160 hours per month. To meet future demands, new technicians must be trained. It takes one month to
train a new technician. During the month of training, a trainee must be supervised for 50 hours by an
experienced technician. Each experienced technician is paid $2,000 per month (even if he or she does
not work the full 160 hours). During the month of training, a trainee is paid $1,000 a month. At the end
of each month, 5% of CSL’s experienced technicians quite to join a competing firm. Formulate an LP.