Example 1:

Yerba Buena Tea is a manufacturer and wholesaler of high-quality tea products. Spiced
chai is becoming increasingly popular among younger consumers, and Yerba Buena offers two
chai products: spiced chai powder mix and spiced chai concentrate. An older production facility
costs $190 to operate and, for each hour of operation, can produce 295 ounces of the powder mix
and 260 ounces of the tea concentrate.
Because of its age, the old facility cannot operate longer than eight consecutive
hours at a time. A newer facility costs $260 per hour to operate and produces 385 ounces of the
powder mix and 375 ounces of the tea concentrate per hour. Yerba Buena also owns a small,
single-purpose facility that costs $150 per hour to operate and produces 350 ounces of the
powder mix per hour. Several coffee shops have placed orders for a total of 5,500 ounces of
the chai powder mix and 4,000 ounces of the tea concentrate.
Anika Patel, the general manager of Yerba Buena, has none of the two products left in
inventory and needs to decide how many hours to operate each facility to fulfill the orders while
minimizing the production cost. Formulate this problem into an LP model for Yerba Buena.
Facilities Output/hr – Powder Mix Output/hr – Tea Concentrate
Older 295 oz/hr 260 oz/hr
Newer 385 oz/hr 375 oz/hr
Single-Purpose 350 oz/hr 0

Objective: To minimize the production costs, C

Let O be the no. of hours to operate the older facility
Decision Variables: N be the no. of hours to operate the newer facility
S be the no. of hours to operate the single-purpose facility
Objective Function: Min. C = 190(O) + 260(N) + 150(S)
Constraints:
Availability of Old F. O <= 8
Demand for P Mix 295(O) + 385N + 350S >= 5,500
Demand for Tea
260(O) + 375N + 0S >= 4,000
Concentrate
NNC O, N, S >= 0
Example 2:
The International City Trust (ICT) invests in short-term trade credits, corporate bonds,
gold stocks, and construction loans. To encourage a diversified portfolio, the board of directors
has placed limits on the amount that can be committed to any one type of investment. ICT has
$5 million available for immediate investment and wishes to maximize the return on the
investments made over the next months while satisfying the diversification requirements set by
the board of directors.
The board specifies that at least 55% of the funds invested must be in gold stocks
and construction loans and that no less than 15% must be invested in trade credits. The
specifics of the investment possibilities are as follows:

Objective: To maximize the return on investments, R

Let T be the amount to be invested in trade credits
C be the amount to be invested in corporate bonds
Decision Variables:
G be the amount to be invested in gold stocks
L be the amount to be invested in construction loans
Objective Function: Max. R = 7%T + 11%C + 19%G + 15%L
Constraints:
Fund Availability T + C + G + L <= 5M
Max for T T <= 1M
Max for C C <= 2.5M
Max for G G <= 1.5M
Max for L L <= 1.8M
Board Specs 1 G + L >= 0.55(T + C + G + L)
Board Specs 2 T >= 0.15(T + C + G + L)
NNC T, C, G, L >=0
Example 3:
The PC Tech company assembles and tests two computer models, Basic and XP. For the
coming month, the company wants to decide how many of each model to assemble and then test.
No computers are in inventory from the previous month, and because these models will be
changed after this month, the company doesn’t want to hold any inventory after this month. It
believes the most it can sell this month are 600 Basics and 1200 XPs. Each basic sells for $300,
and each XP sells for $450. The cost of parts for a Basic is $150; for an XP, it is $225. Labor is
required for assembly and testing. There are at most 10,000 assembly hours and 3000 testing
hours available. Each labor hour for assembling costs $11, and each labor hour for testing costs
$15. Each Basic requires five hours for assembling and one hour of testing, and each XP
requires six hours for assembling and two hours of testing. PC Tech wants to know how many of
each model it should produce (assemble and test) to maximize its net profit, but it cannot use
more labor hours than are available, and it does not want to produce more than it can sell.

Objective:

Decision Variables:

Objective Function:
Constraints:
Example 4:
XYZ Lumber manufactures pre-fabricated houses. It plans to offer three models: studio-
type, one-bedroom, and two-bedroom units. Each house is prefabricated and partially assembled
in the factory, and the final assembly is completed on-site. The amount of building material
required, the amount of labor required in the factory, the amount of on-site labor required per
year, available labor hours per year, and the profit per unit are shown.
P410 million is budgeted for the building material for the first year's production. How
many hours of each model does XYZ Lumber produce to maximize its profit?
Model Material Factory Labor On-site labor Profit per
costs (in hours) (in hours) house
Studio type P 300,000 240 180 P 180,000
1 bedroom P 400,000 220 210 P 200,000
2 bedrooms P 500,000 200 300 P 250,000
Availability 218,000 237,000

Objective: To maximize profit, Z

Let x 1 be the number of studio type units
Decision Variables: x 2 be the number of 1 bedroom units
x 3 be the number of 2 bedroom units
Objective Function: Maximize z = 180,000 x 1 + 200,000 x 2 + 250,000 x 3
Constraints:
300,000 x 1+ 400,000 x 2+500,000 x 3 ≤ 410,000,000
or
Production budget
3 x 1+ 4 x 2+ 5 x 3 ≤ 4100
240 x 1+ 220 x 2 +200 x 3 ≤ 218,000
Factory labor hours or
12 x 1+ 11 x2 +10 x 3 ≤ 10900
180 x 1+210 x 2 +300 x 3 ≤ 237,000
On-site labor hours or
6 x 1+ 7 x2 +10 x 3 ≤ 7900
Non-negativity Constraint x1 , x2 , x3 ≥ 0