Business Analytics Solman

A SIMPLE MAXIMIZATION PROBLEM
Illustration
Par, Inc. - A small manufacturer of golf equipment and supplies.
Management has decided to move into the market for medium- and high-priced golf bags.
Par’s distributor to buy all the produced bags by the end of third month.
Production requirement per golf bag
Production Time (Hours)

Department Standard bag Deluxe bag
Cutting and Dyeing 7/10 1
Sewing 1/2 5/6
Finishing 1 2/3
Inspection and Packaging 1/10 1/4
Estimated total time available for the next three months to perform different operation
Department Number of hours

Cutting and Dyeing 630.00
Sewing 600.00
Finishing 708.00
Inspection and Packaging 135.00
Required profit contribution

Standard bag 10.00 per unit
Deluxe bag 9.00 per unit
Mathematical model for the par inc problem
Objective: Max 10S + 9D

Constraints: 7/10S + 1D ≤ 630
1/2S + 5/6D ≤ 600
1S + 2/3D ≤ 708
1/10S + 1/4D ≤ 135
Non negativity: S, D ≥ 0
Manual solving: *See sa notebook
Constraint 1: X Y
- 630.00
7/10S + 1D ≤ 630
900.00 -
Constraint 2: X Y
- 720.00
1/2S + 5/6D ≤ 600
1,200.00 -
Constraint 3: X Y
- 1,062.00
1S + 2/3D ≤ 708
708 -
Constraint 4: X Y
- 540.00
1/10S + 1/4D ≤ 135
1,350.00 -
Parameters
Production Time (hrs) Time Available

Operation Standard Deluxe Hrs
Cutting and Dyeing 7/10 1 630.00
Sewing 1/2 5/6 600.00
Finishing 1 2/3 708.00
Inspection and Packaging 1/10 1/4 135.00
Profit per bag 10.00 9.00
Model
Standard Deluxe
Bags produced 540.00 252.00
Total profit 7,668.00
Operation Hours used Hours available

Cutting and Dyeing 630.00 630.00
Sewing 480.00 600.00
Finishing 708.00 708.00
Inspection and Packaging 117.00 135.00
Microsoft Excel 16.0 Answer Report
Worksheet: [BUSINESS ANALYTICS SOLMAN.xlsx]Par inc
Report Created: 11/5/2022 10:48:57 AM
Result: Solver found a solution. All Constraints and optimality conditions are satisfied.
Solver Engine
Engine: Simplex LP
Solution Time: 0.125 Seconds.
Iterations: 2 Subproblems: 0
Solver Options
Max Time Unlimited, Iterations Unlimited, Precision 0.000001, Use Automatic Sc
Max Subproblems Unlimited, Max Integer Sols Unlimited, Integer Tolerance 1%,
Objective Cell (Max)

Cell Name Original Value
Final Value
$E$72 Total profit - 7,668.00
Variable Cells
Final Value Integer
$E$70 Bags produce - 540.00 Contin
$F$70 Bags produce - 252.00 Contin
Constraints
Cell Name Cell Value Formula Status
$E$75 Cutting and 630.00 $E$75<=$F Binding
$E$76 Sewing Hour 480.00 $E$76<=$F Not Binding
$E$77 Finishing Ho 708.00 $E$77<=$F Binding
$E$78 Inspection a 117.00 $E$78<=$F Not Binding
The answer report contains three sections.

Objective Cell - It indicates that optimal value of final of total profit is $7,6
Variable Cells - Indicates the optimal values of the decision cells and whet
Constraints - It gives the left-hand side value for each constraint (hours us
Binding constraint – One that holds as an equality at the optimal solution.
Slack value – Indicates the difference between the left-hand and right-han
Binding constraints(cutting and dyeing, and finishing) have zero slack.
Consider for example the sewing department constraint. By adding a nonn
(1/2)S + (5/6)D ≤ 600
(1/2)S + (5/6)D + slack(sewing) = 600
slack(sewing) = 600 – (1/2)(540) + (5/6)(252)
Microsoft Excel 16.0 Sensitivity Report

Worksheet: [BUSINESS ANALYTICS SOLMAN.xlsx]Par inc
Variable Cells
Final Reduced Objective
Cell Name Value Cost Coefficient
$E$70 Bags produce 540 0 10
$F$70 Bags produce 252 0 9
Constraints
Final Shadow Constraint
Cell Name Value Price R.H. Side
$E$75 Cutting and 630 4.375 630
$E$76 Sewing Hour 480 0 600
$E$77 Finishing Ho 708 6.9375 708
$E$78 Inspection a 117 0 135
mality conditions are satisfied.
cision 0.000001, Use Automatic Scaling

Unlimited, Integer Tolerance 1%, Assume NonNegative
Slack
0
120
0
18
lue of final of total profit is $7,668.

s of the decision cells and whether or not the variables are required to be integer.
ue for each constraint (hours used), the formula showing the constraint relationship, the status ( Binding or Not binding), and t
equality at the optimal solution. They intersect to form the optimal point.
ween the left-hand and right-hand values for a constraint.
d finishing) have zero slack.
ent constraint. By adding a nonnegative slack variable, we can make the constraint equality.
D + slack(sewing) = 600
= 600 – (1/2)(540) + (5/6)(252) = 600 – 270 – 210 =120
Allowable Allowable
Increase Decrease
3.5 3.7
5.2857143 2.3333333
Allowable Allowable
Increase Decrease
52.363636 134.4
1E+030 120
192 128
1E+030 18
or Not binding), and the Slack value.
A SIMPLE MINIMIZATION PROBLEM
Illustration
Production requirements for M&D Chemicals:
The combined production for products A and B must total at least 350 gallons.
Separately a major customer’s order for 125 gallons of product A must also be satisfied.
Processing time:
Product A: 2 hours/gallon
Product B: 1 hour/gallon
For the coming month, 600 hours of processing time are available.
Production cost
Product A: 2 dollars per gallon
Product B: 3 dollars per gallon
Linear program for the M&D Chemicals problem:

Objective Min 2A + 3B
Constraints
1A ≥ 125 Demand for product A
1A + 1B ≥ 350 Total production
2A + 1B ≤ 600 Processing time
A, B ≥ 0 Non negativity constraints

Parameters
Product Time
A B Available
Processing time 2.00 1.00 600.00
Production cost 2.00 3.00
Minimum Demand 125.00 350.00
Model
Product
A B
Gallon produced 250.00 100.00
Minimize Total cost 800.00
Hours Unused
Used Available Hours
Processing time 600.00 600.00
Qty Min demand

A 250.00 125.00
A+B 350.00 350.00
Worksheet: [BUSINESS ANALYTICS SOLMAN.xlsx]M&D
Solver Engine
Engine: Simplex LP
Solver Options
Max Time Unlimited, Iterations Unlimited, Precision 0.000001
Max Subproblems Unlimited, Max Integer Sols Unlimited, Integer Tolerance 1%, Assume NonNegative
Objective Cell (Min)

Final Value
$D$40 Minimize To 800.00 800.00
Variable Cells
Final Value Integer
$D$38 Gallon pro 250.00 250.00 Contin
$E$38 Gallon pro 100.00 100.00 Contin
Constraints
Cell Name Cell Value Formula Status Slack
$D$44 Processing 600.00 $D$44<=$EBinding 0
$D$47 A Qty 250.00 $D$47>=$ENot Binding 125.00
$D$48 A + B Qty 350.00 $D$48>=$EBinding -

Worksheet: [BUSINESS ANALYTICS SOLMAN.xlsx]M&D
Variable Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$D$38 Gallon pro 250 0 2 1 1E+030
$E$38 Gallon pro 100 0 3 1E+030 1
Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$D$44 Processing 600 -1 600 100 125
$D$47 A Qty 250 0 125 125 1E+030
$D$48 A + B Qty 350 4 350 125 50
%, Assume NonNegative
INVESTMENT PORTFOLIO SELECTION
Illustration
Welte Mutual Funds, Inc., located in New York City is looking for investment opportunities for $100,000.
The firm’s top financial analyst identified five investment opportunities and projected their annual rates of
Investment Projected Rate of Return

Atlantic Oil 7.30%
Pacific Oil 10.30%
Midwest Steel 6.40%
Huber Steel 7.50%
Government bonds 4.50%
Investment guidelines:
Neither industry (oil or steel) should receive more than $50,000.
Amount invested in government bonds should be at least 25 percent of the steel industry investments.
The investment in Pacific Oil, the high-return but high-risk investment, cannot be more than 60 percent of
Linear Programming Model
Objective: Max 0.073x1 + 0.103x2 + 0.064x3 + 0.075x4 + 0.045x5

Constraints:
Available funds x1 + x2+ x3 + x4 + x5 = 100,000
Oil Industry Maximum x1 + x2 ≤ 50,000
Steel Industry Maximum x3 + x4 ≤ 50,000
Government bonds Min. x5 ≥ 0.25 (x3 + x4)
Pacific Oil restriction x2 ≤ 0.60(x1 + x2)
Non negativity x1, x2, x3, x4, x5 ≥ 0
Parameters
Investment Projected Rate of Return

Atlantic Oil 7.30%
Pacific Oil 10.30%
Midwest Steel 6.40%
Huber Steel 7.50%
Government bonds 4.50%
Min Max
Available funds 100,000.00
Oil Industry 50,000.00
Steel Industry 50,000.00
Pacific oil 60% of oil industry
Government bonds 25% of steel industry
Model
Investment Amount
Atlantic Oil 20,000.00
Pacific Oil 30,000.00
Midwest Steel -
Huber Steel 40,000.00
Government bonds 10,000.00
Total 100,000.00
Total return 8,000.00
Amount
Investment Min Max
Available funds 100,000.00 100,000.00
Oil Industry 50,000.00 50,000.00
Steel Industry 40,000.00 50,000.00
Pacific oil 30,000.00 30,000.00
Government bonds 10,000.00 10,000.00
Worksheet: [BUSINESS ANALYTICS SOLMAN.xlsx]WELTE
pportunities for $100,000. Report Created: 11/5/2022 11:56:41 AM
ected their annual rates of return: Result: Solver found a solution. All Constraints and optim
Solver Engine
Engine: Simplex LP
Solver Options
Max Time Unlimited, Iterations Unlimited, Pre
Max Subproblems Unlimited, Max Integer Sols

el industry investments. Cell Name
be more than 60 percent of the total oil industry investment. $E$56 Total retur
Variable Cells
Cell Name
$E$49 Atlantic Oi
$E$50 Pacific Oil
$E$51 Midwest St
$E$52 Huber Steel
$E$53 Government
Constraints
Cell Name
$D$60 Available f
$D$61 Oil Industry
$D$62 Steel Indus
$D$63 Pacific oil
$D$64 Government

Worksheet: [BUSINESS ANALYTICS SOLMAN.xlsx]WELTE
Variable Cells
Cell Name
$E$49 Atlantic Oi
$E$50 Pacific Oil
$E$51 Midwest St
$E$52 Huber Steel
$E$53 Government
Constraints
Cell Name
$D$60 Available f
$D$61 Oil Industry
$D$62 Steel Indus
$D$63 Pacific oil
$D$64 Government
Answer Report
S ANALYTICS SOLMAN.xlsx]WELTE
/2022 11:56:41 AM
solution. All Constraints and optimality conditions are satisfied.
me: 0.031 Seconds.

4 Subproblems: 0
Unlimited, Iterations Unlimited, Precision 0.000001

oblems Unlimited, Max Integer Sols Unlimited, Integer Tolerance 1%, Assume NonNegative
Original Value Final Value

- 8,000.00
Original Value Final Value Integer

- 20,000.00 Contin
- 30,000.00 Contin
- - Contin
- 40,000.00 Contin
- 10,000.00 Contin
Cell Value Formula Status Slack

100,000.00 $D$60<=$F$60 Binding 0
50,000.00 $D$61<=$F$61 Binding 0
40,000.00 $D$62<=$F$62 Not Binding 10000
30,000.00 $D$63<=$F$63 Binding 0
10,000.00 $D$64>=$E$64 Binding -
ensitivity Report
S ANALYTICS SOLMAN.xlsx]WELTE
/2022 11:56:41 AM
Final Reduced Objective Allowable Allowable

Value Cost Coefficient Increase Decrease
20000 0 0.073 0.03 0.055
30000 0 0.103 1E+030 0.03
0 -0.011 0.064 0.011 1E+030
40000 0 0.075 0.0275 0.011
10000 0 0.045 0.03 0.345
Final Shadow Constraint Allowable Allowable

Value Price R.H. Side Increase Decrease
100000 0.069 0 12500 50000
50000 0.022 0 50000 12500
40000 0 0 1E+030 10000
30000 0.03 0 20000 30000
10000 -0.024 0 50000 12500
* In every increase in the parameters may katumbas na increase of decrease din (looking at the shadow price)
* if nag increase ka ng 1 sa available funds, mag increase din ang objective ng 0.069
oking at the shadow price)
TRANSPORTATION PLANNING
Illustration using Foster Generators problem
Involves the transportation of a product from three plants to four distribution centers.
To determine how much of its production should be shipped from each plant to each distribution center.

Production capacities over the next three-month planning period for one type of generator:
Three-Month
Origin Plant Production Capacity
1 Cleveland 5,000.00
2 Bedford 6,000.00
3 York 2,500.00
Total 13,500.00
The three-month forecast of demand for the distribution centers:
Distribution Three-Month
Destination Center Production Capacity
1 Boston 6,000.00
2 Chicago 4,000.00
3 St. Louis 2,000.00
4 Lexington 1,500.00
Total 13,500.00
Figure 8.13 shows graphically the 12 distribution ro

The circles are called nodes. Each origin and destin
The lines connecting the nodes are arcs and each p
The amount of the supply is written next to each o
The amount of the demand is written next to each
The goods shipped from the origins to the destinati
The direction of flow is indicated by the arrows.
Objective:
To determine the routes to be used and
The quantity to be shipped via each route
That provides the minimum total transportation cost

Let xij = number of units shipped from origin i to destination j
where i = 1, 2, . . . , m and j = 1, 2, . . . , n

Transportation cost per unit for the Foster Generators transportation problem ($):
Destination Des
Origin Boston Chicago St. Lous Lexington Origin
Cleveland 3.00 2.00 7.00 6.00 Cleveland
Bedford 6.00 5.00 2.00 3.00 Bedford
York 2.00 5.00 4.00 5.00 York
Using the cost data in the table, we arrive at the following cost expressions:
Transportation costs for units shipped from Cleveland = 3x11 + 2x12 + 7x13 + 6x14.
Transportation costs for units shipped from Bedford = 6x21 + 5x22 + 2x23 + 3x24.
Transportation costs for units shipped from York = 2x31 + 5x32 + 4x33 + 5x34.
The sum of these expressions provides the objective function showing the total transportation cost for Fo
Supply constraints
x11 + x12 + x13 + x14 ≤ 5000 Cleveland supply
x21 + x22 + x23 + x24 ≤ 6000 Bedford supply
x31 + x32 + x33 + x34 ≤ 2500 York supply
Demand constraints
x11 + x21 + x31 = 6000 Boston demand
x12 + x22 + x32 = 4000 Chicago demand
x13 + x23 + x33 = 2000 St. Louis demand
x14 + x24 + x34 = 1500 Lexington demand

Transportation problems need constraints because each origin has a limited supply and each destination
A 12-variable, 7-constraint linear programming formulation of the Foster Generators transportation proble
Objective 3x11 + 2x12 + 7x13 + 6x14 + 6x21 + 5x22 + 2x23 + 3x24 + 2x31 + 5x32 + 4x33 + 5x34
Constraint
x11 + x12 + x13 + x14 ≤ 5000
x21 + x22 + x23 + x24 ≤6000
x31 + x32 + x33 + x34 ≤ 2500
x11 + x21 + x31 = 6000
x12 + x22 + x32 = 4000
x13 + x23 + x33 = 2000
x14 + x24+x34 = 1500
xij ≥ 0 for i = 1, 2, 3 and j = 1, 2, 3, 4
Parameters
Shipping costs
Destination
Origin Boston Chicago St. Lous Lexington Supply
Cleveland 3.00 2.00 7.00 6.00 5,000.00
Bedford 6.00 5.00 2.00 3.00 6,000.00
York 2.00 5.00 4.00 5.00 2,500.00
Demand 6,000.00 4,000.00 2,000.00 1,500.00
Model

Cleveland 1,000.00 4,000.00 - - 5,000.00
Bedford 2,500.00 - 2,000.00 1,500.00 6,000.00
York 2,500.00 - - - 2,500.00
Demand 6,000.00 4,000.00 2,000.00 1,500.00
Total shipping cost 39,500.00

each distribution center.
generator:
cally the 12 distribution routes Foster can use. Such a graph is called a network.
des. Each origin and destination is represented by a node.
nodes are arcs and each possible shipping route is represented by an arc.
y is written next to each origin node.
nd is written next to each destination node.
the origins to the destinations represent the flow in the network.
ndicated by the arrows.
Destination
Boston Chicago St. Lous Lexington
X11 X12 X13 X14
X21 X22 X23 X24
X31 X32 X33 X34
transportation cost for Foster Generators.
upply and each destination has a demand requirement.
ators transportation problem:

1 + 5x32 + 4x33 + 5x34

Worksheet: [BUSINESS ANALYTICS SOLMAN.xlsx]Foster
Report Created: 11/5/2022 12:54:45 PM
Solver Engine
Engine: Simplex LP
Solver Options
Max Time Unlimited, Iterations Unlimited, Precision 0.000001, Use Automatic Scaling
Max Subproblems Unlimited, Max Integer Sols Unlimited, Integer Tolerance 1%, Assume No

Cell Name Original Value Final Value
$D$108 Total shipp - 39,500.00
Variable Cells
Cell Name Original Value Final Value Integer
$C$103 Cleveland - 1,000.00 Contin
$D$103 Cleveland C - 4,000.00 Contin
$E$103 Cleveland S - - Contin
$F$103 Cleveland L - - Contin
$C$104 Bedford Bo - 2,500.00 Contin
$D$104 Bedford Ch - - Contin
$E$104 Bedford St. - 2,000.00 Contin
$F$104 Bedford Lex - 1,500.00 Contin
$C$105 York Bosto - 2,500.00 Contin
$D$105 York Chicag - - Contin
$E$105 York St. Lou - - Contin
$F$105 York Lexing - - Contin
Constraints
Cell Name Cell Value Formula Status
$C$106 Demand Bo 6,000.00 $C$106=$C$98 Binding
$D$106 Demand Ch 4,000.00 $D$106=$D$98 Binding
$E$106 Demand St. 2,000.00 $E$106=$E$98 Binding
$F$106 Demand Lex 1,500.00 $F$106=$F$98 Binding
$G$103 Cleveland S 5,000.00 $G$103<=$G$95 Binding
$G$104 Bedford Su 6,000.00 $G$104<=$G$96 Binding
$G$105 York Supply 2,500.00 $G$105<=$G$97 Binding
Worksheet: [BUSINESS ANALYTICS SOLMAN.xlsx]Foster
tions are satisfied.
Variable Cells
Final Reduced Objective
Cell Name Value Cost Coefficient
$C$103 Cleveland 1000 0 3
001, Use Automatic Scaling $D$103 Cleveland C 4000 0 2
nteger Tolerance 1%, Assume NonNegative $E$103 Cleveland S 0 8 7
$F$103 Cleveland L 0 6 6
$C$104 Bedford Bo 2500 0 6
$D$104 Bedford Ch 0 0 5
$E$104 Bedford St. 2000 0 2
$F$104 Bedford Lex 1500 0 3
$C$105 York Bosto 2500 0 2
$D$105 York Chicag 0 4 5
$E$105 York St. Lou 0 6 4
$F$105 York Lexing 0 6 5
Constraints
Final Shadow Constraint
Cell Name Value Price R.H. Side
$C$106 Demand Bo 6000 6 6000
$D$106 Demand Ch 4000 5 4000
$E$106 Demand St. 2000 2 2000
$F$106 Demand Lex 1500 3 1500
$G$103 Cleveland S 5000 -3 5000
$G$104 Bedford Su 6000 0 6000
$G$105 York Supply 2500 -4 2500
Slack
0
0
0
0
0
0
0
Allowable Allowable
Increase Decrease
3 0
0 1E+030
1E+030 8
1E+030 6
0 3
1E+030 0
6 1E+030
6 1E+030
4 1E+030
1E+030 4
1E+030 6
1E+030 6
Allowable Allowable
Increase Decrease
0 2500
0 2500
0 2000
0 1500
2500 0
1E+030 0
2500 0
ADVERTISING PLANNING
Illustration
Relax-and-Enjoy Lake Development Corporation:
Developing a lakeside community at a privately owned lake.
Primary market includes all middle- and upper-income families within approximately 100 miles of the dev
Employed the advertising firm of Boone, Phillips, and Jackson (BP&J) to design the promotional campaig

Advertising Media
1. Daytime Tv ( 1 min) Station WKLA
2. Evening Tv (30 secs) Station WKLA
3. Daily news paper (full page) The Morning Journal
4. Sunday newspaper magazine (1/2 page color) The Sunday press
5. Radio, 8 am or 5 pm news (30 secs) Station KNOP
Problem Formulation:
Budget: $30,000
Restrictions imposed
At least 10 television commercials must be used.
At least 50,000 potential customers must be reached.
No more than $18,000 may be spent on television advertisements.
The decision to be made is how many times to use each medium.

Define the decision variables:
DTV = number of times daytime TV is used
ETV = number of times evening TV is used
DN = number of times daily newspaper is used
SN = number of times Sunday newspaper is used
R = number of times radio is used
Objective - Maximizing the total exposure quality units for the overall media selection plan.

Linear Programming Model
Objective: 65DTV + 90ETV + 40DN + 60SN + 20R
Constraints
DTV ≤ 15
ETV ≤ 10
Availability of Media DN ≤ 25
SN ≤ 4
R ≤ 30
Budget 1500DTV + 3000ETV + 400DN + 1000SN + 100R ≤ 30,000
Television DTV + ETV ≥ 10
restriction 1500DTV + 3000ETV ≤ 18,000
Customer reached 1000DTV + 2000ETV +1500DN + 2500SN + 300R ≥ 50,000
Non negativity DTV, ETV, DN, SN, R ≥ 0
Parameters
DTV ETV DN SN
# of potential customer 1,000.00 2,000.00 1,500.00 2,500.00
Cost per ads 1,500.00 3,000.00 400.00 1,000.00
Max availability 15.00 10.00 25.00 4.00
Exposure 65.00 90.00 40.00 60.00
Budget 30,000.00
Model
DTV ETV DN SN
Advertising media 10.00 - 25.00 2.00
Exposure Quality 2,370.00
Actual Min Max

Budget 30,000.00 30,000.00
Spend on Tv ads 15,000.00 18,000.00
DTV 10.00 15.00
ETV - 10.00
DN 25.00 25.00
SN 2.00 4.00
R 30.00 30.00
Tv Commercial 10.00 10.00
Potential customer 61,500.00 50,000.00
roximately 100 miles of the development.
design the promotional campaign.
# of potential Exposure
Cost per
customer Quality
Advertisement
reached Units
1,000.00 1,500.00 65.00
2,000.00 3,000.00 90.00
1,500.00 400.00 40.00
2,500.00 1,000.00 60.00
300.00 100.00 20.00
dia selection plan.

Worksheet: [BUSINESS ANALYTICS SOLMAN.xlsx]Sheet20
R Report Created: 11/5/2022 1:49:23 PM
300.00 Result: Solver found a solution. All Constraints and optimality conditions are satisfie
100.00 Solver Engine
30.00 Engine: Simplex LP
20.00 Solution Time: 0.031 Seconds.
Solver Options
Max Time Unlimited, Iterations Unlimited, Precision 0.000001
Max Subproblems Unlimited, Max Integer Sols Unlimited, Integer Tole
R
30.00
$E$61 Exposure Qu 2,370.00 2,370.00
Variable Cells
$E$59 Advertising 10.00 10.00
$F$59 Advertising - -
$G$59 Advertisin 25.00 25.00
$H$59 Advertising 2.00 2.00
$I$59 Advertising 30.00 30.00
Constraints
Cell Name Cell Value Formula
$E$65 Budget Actu 30,000.00 $E$65<=$G
$E$66 Spend on Tv 15,000.00 $E$66<=$G
$E$67 DTV Actual 10.00 $E$67<=$G
$E$68 ETV Actual - $E$68<=$G
$E$69 DN Actual 25.00 $E$69<=$G
$E$70 SN Actual 2.00 $E$70<=$G
$E$71 R Actual 30.00 $E$71<=$G
$E$72 Tv Commerc 10.00 $E$72>=$F
$E$73 Potential c 61,500.00 $E$73>=$F
Worksheet: [BUSINESS ANALYTICS SOLMAN.xlsx]Sheet2
optimality conditions are satisfied.
Variable Cells
Final
Cell Name Value
$E$59 Advertising 10
ited, Precision 0.000001 $F$59 Advertising 0
eger Sols Unlimited, Integer Tolerance 1%, Assume NonNegative $G$59 Advertisin 25
$H$59 Advertising 2
$I$59 Advertising 30
Final Value Constraints

Final
Cell Name Value
$E$65 Budget Actu 30000
$E$66 Spend on Tv 15000
Integer $E$67 DTV Actual 10
Contin $E$68 ETV Actual 0
Contin $E$69 DN Actual 25
Contin $E$70 SN Actual 2
Contin $E$71 R Actual 30
Contin $E$72 Tv Commerc 10
$E$73 Potential c 61500
Status Slack
Binding 0
Not Binding 3000
Not Binding 5
Not Binding 10
Binding 0
Not Binding 2
Binding 0
Binding -
Not Binding 11,500.00
CS SOLMAN.xlsx]Sheet20
Reduced Objective Allowable Allowable
Cost Coefficient Increase Decrease
0 65 25 65
-65 90 65 1E+030
0 40 1E+030 16
0 60 40 16.666667
0 20 1E+030 14
Shadow Constraint Allowable Allowable

Price R.H. Side Increase Decrease
0.06 30000 2000 2000
0 18000 1E+030 3000
0 15 1E+030 5
0 10 1E+030 10
16 25 5 5
0 4 1E+030 2
14 30 20 20
-25 10 1.3333333 1.3333333
0 50000 11500 1E+030
Illustration
Consider the Foster Generators transportation problem:
From Figure 8.14, the optimal solution:
x11 = 1000, x12 = 4000, x13 = 0, x14 = 0
x21 = 2500, x22 = 0, x23 = 2000, x24 = 1500
x31 = 2500, x32 = 0, x33 = 0, x34 = 0
Optimal cost: $39,500
For the revised model to be optimal, the solution must give a total cost of $39,500.

From Figure 8.14:
x13 = x14 = x22 = x32 = x33 = x34 = 0
If the sum of these variables is maximized and if the optimal objective function value of the revised prob
A different feasible solution that is also optimal is found.

Revised model:
Objective Max x13 + x14 + x22 + x32 + x33 + x34
Constraints:
x11 + x12 + x13 + x14 ≤ 5,000
x21 + x22 + x23 + x24 ≤ 6,000
x31 + x32 + x33 + x34 ≤ 2,500
x11 + x21 + x31 = 6,000
x12 + x22 + x32 = 4,000
x13 + x23 + x33 = 2,000
x14 + x24 +x34 = 1,500
3x11 + 2x12 + 7x13 + 6x14 + 6x21 + 5x22 + 2x23 + 3x24 + 2x31 + 5x32 + 4x33
xij ≥ 0 for i = 1, 2, 3 and j = 1, 2, 3, 4
Parameters
Shipping costs
Destination
Cleveland 3.00 2.00 7.00 6.00 5,000.00
Bedford 6.00 5.00 2.00 3.00 6,000.00
York 2.00 5.00 4.00 5.00 2,500.00
Demand 6,000.00 4,000.00 2,000.00 1,500.00
Model

Cleveland 3,500.00 1,500.00 - - 5,000.00
Bedford - 2,500.00 2,000.00 1,500.00 6,000.00
York 2,500.00 - 0.00 - 2,500.00
Demand 6,000.00 4,000.00 2,000.00 1,500.00
New Objective 2,500.00

(max. variables that are equal to 0)
(include previous objective as constraints)
The solution to this problem has objective function value = 2500, indicating that the variables that were z
Comparing Figure 8.14 and Table 8.6, we see that in this new solution, Bedford ships 2500 units to Chic
In the original solution (Figure 8.14):

Boston distribution center is sourced from all three plants, whereas each of the other distribution cen
Hence, the manager in the Boston distribution center has to deal with three different plant managers,
The alternative solution (Table 8.6) provides a more balanced solution.
Managers in Boston and Chicago each deal with two plants, and those in St. Louis and Lexington, wh
Because the alternative solution seems to be more equitable, it might be preferred.
Both the solutions give a total cost of $39,500.
General approach to find an alternative optimal solution to a linear program:

Step 1 - Solve the linear program.
Step 2 - Make a new objective function to be maximized. It is the sum of those variables that were eq
Step 3 - Keep all the constraints from the original problem. Add a constraint that forces the original ob
Step 4 - Solve the problem created in steps 2 and 3. If the objective function value is positive, an alte

Worksheet: [BUSINESS ANALYTICS SOLMAN.xlsx]FG
Solver Engine
Engine: Simplex LP
Solver Options
Max Time Unlimited, Iterations Unlimited, Precision 0.000001, Use Automatic Scaling
Max Subproblems Unlimited, Max Integer Sols Unlimited, Integer Tolerance 1%, Assume NonNegati

$D$48 New Objective 2,500.00 2,500.00
Variable Cells
$C$41 Cleveland Bost 3,500.00 3,500.00 Contin
$D$41 Cleveland Chic 1,500.00 1,500.00 Contin
$E$41 Cleveland St. L - - Contin
$F$41 Cleveland Lexi - - Contin
$C$42 Bedford Boston - - Contin
$D$42 Bedford Chicag 2,500.00 2,500.00 Contin
$E$42 Bedford St. Lou 2,000.00 2,000.00 Contin
$F$42 Bedford Lexing 1,500.00 1,500.00 Contin
$C$43 York Boston 2,500.00 2,500.00 Contin
$D$43 York Chicago - - Contin
$E$43 York St. Lous 0.00 0.00 Contin
$F$43 York Lexington - - Contin
Constraints
$C$44 Demand Bosto 6,000.00 $C$44=$C$36Binding 0
$D$44 Demand Chicag 4,000.00 $D$44=$D$3Binding 0
$E$44 Demand St. Lou 2,000.00 $E$44=$E$36Binding 0
$F$44 Demand Lexing 1,500.00 $F$44=$F$36Binding 0
$D$46 Total shipping 39,500.00 $D$46=$D$5Binding 0
$G$41 Cleveland Supp 5,000.00 $G$41=$G$3Binding 0
$G$42 Bedford Supply 6,000.00 $G$42=$G$3Binding 0
$G$43 York Supply 2,500.00 $G$43=$G$3Binding 0
on value of the revised problem is positive.
+ 3x24 + 2x31 + 5x32 + 4x33 + 5x34 = 39,500
PREVIOUS SOLUTION

Cleveland 1,000.00 4,000.00 - - 5,000.00
Bedford 2,500.00 - 2,000.00 1,500.00 6,000.00
York 2,500.00 - - - 2,500.00
Demand 6,000.00 4,000.00 2,000.00 1,500.00
Total shipping 39,500.00

that the variables that were zero in the previous solution now add up to 2500.
ford ships 2500 units to Chicago instead of Boston.
of the other distribution centers is sourced by one plant.

ee different plant managers, whereas each of the other distribution center managers has only one plant manager.
n St. Louis and Lexington, which have lower total volumes, deal with only one plant.
preferred.
those variables that were equal to zero in the solution from Step 1.
aint that forces the original objective function to be equal to the optimal objective function value from step 1.
tion value is positive, an alternative optimal solution is found.

Worksheet: [BUSINESS ANALYTICS SOLMAN.xlsx]FG
Variable Cells
Final Reduced
Cell Name Value Cost
$C$41 Cleveland Bo 3500 0
Automatic Scaling $D$41 Cleveland Ch 1500 0
erance 1%, Assume NonNegative $E$41 Cleveland St. 0 -0.6666667
$F$41 Cleveland Le 0 0
$C$42 Bedford Bost 0 -1
$D$42 Bedford Chic 2500 0
$E$42 Bedford St. L 2000 0
$F$42 Bedford Lexi 1500 0
$C$43 York Boston 2500 0
$D$43 York Chicago 0 -0.3333333
$E$43 York St. Lous 4.54747E-13 0
$F$43 York Lexingt 0 0
Constraints
Final Shadow
Cell Name Value Price
$C$44 Demand Bost 6000 -1
$D$44 Demand Chic 4000 -0.6666667
$E$44 Demand St. L 2000 -0.6666667
$F$44 Demand Lexi 1500 -1
$D$46 Total shippin 39500 0.33333333
$G$41 Cleveland Su 5000 0
$G$42 Bedford Supp 6000 0
$G$43 York Supply 2500 0.33333333
e plant manager.
Objective Allowable Allowable

Coefficient Increase Decrease
0 1 0
0 1 1
1 0.66666667 1E+030
1 0 1E+030
0 1 1E+030
1 1E+030 0.5
0 0 1E+030
0 1E+030 0
0 0 1
1 0.33333333 1E+030
1 1E+030 0
1 0 1E+030
Constraint Allowable Allowable

R.H. Side Increase Decrease
6000 2.27374E-13 2000
4000 2.27374E-13 1800
2000 2.27374E-13 1500
1500 2.27374E-13 1500
39500 9000 2.72848E-12
5000 4000 2.27374E-13
6000 2.27374E-13 1E+030
2500 3000 2.27374E-13
Integer Linear Programming Model
Integer linear programs: Problems that are modeled as linear programs with the additional require
The objective is to provide an applications-oriented introduction to integer linear programming.
Types of Integer Linear Optimization Models
All-integer linear program: If all variables are required to be integer.

Mixed-integer linear program: If some, but not necessarily all, variables are required to be integer
Binary integer linear program: The integer variables may take on only the values 0 or 1.
LP Relaxation (linear programming relaxation) of the integer linear program: The linear p
Eastborne Realty, An Example of Integer Optimization
Eastborne’s property manager can devote up to 140 hours per month to these new properties.
Each townhouse is expected to require 4 hours per month.
Each apartment building is expected to require 40 hours per month.
Annual cash flow estimated to be:
$10,000 per townhouse.
$15,000 per apartment building.
After deducting mortgage payments and operating expenses.
Eastborne’s owner would like to determine the number of townhouses and the number of apartmen
Defining the decision variables:
T = number of townhouses
A = number of apartment buildings
Objective function for cash flow (in thousands of dollars):
Max 10T + 15A
Three constraints must be satisfied:
282T + 400A ≤ 2000 Funds available ($1000s)
4T + 40A ≤ 140 Manager’s time (hours)
T ≤ 5 Townhouses available
The variables T and A must be nonnegative.
In addition, the purchase of a fractional number of townhouses and/or a fractional number of apartm
T and A must be integer.
Model for the Eastborne Realty problem:
Objective Max 10T + 15A
Constraints 282T + 400A ≤ 2000
4T + 40A ≤ 140
T ≤ 5
T, A ≥ 0 and integer
Parameters
Townhouse Apt. Bldg. Funds Avl.
Price 282.00 400.00 Mgr. Time Avl.
Mgr. Time 4.00 40.00 Townhouse Avl.
Annual Cash Flow 10.00 15.00
Model
Townhouse Apt. Bldg.
Units to produce 4.00 2.00
Max annual cashflow 70.00
Used Available
Budget 1,928.00 2,000.00
Mgr. Time 96.00 140.00
Townhouses Avl. 4.00 5.00
The Geometry of the Eastborne Realty Problem
The Geometry Linear All-Integer Optimization
The shaded region is the feasible region of the LP Relaxation.

The optimal linear programming solution is:
Point b: The intersection of the Managers Time constraint and the Available Fu
T = 2.479 townhouses and A = 3.252 apartment buildings.
The optimal value of the objective function is 73.574.
Indicates an annual cash flow of $73,574.
Unfortunately, Eastborne cannot purchase fractional numbers of townhouses and apartm
Further analysis is necessary.
In many cases, a noninteger solution can be rounded to obtain an acceptable integer solu
For instance, a linear programming solution to a production scheduling problem
cases of breakfast cereal and the rounded integer solution of 15,132 cases wo
value of the objective function and the feasibility of the solution.
A near-optimal solution is fine.
However, rounding may not always be a good strategy.
When the decision variables take on small values that have a major impact on the value o
an optimal integer solution is needed.
Optimal solution to the LP Relaxation for Eastborne Realty:
T = 2.479 townhouses and A = 3.252 apartment buildings.
Rounding to an integer solution can be expected to have a substantial economic impact o
Because each townhouse costs $282,000 and each apartment building costs $
Suppose, round the solution to the LP Relaxation:
Integer solution: T = 2 and A = 3.
Objective function value: 10(2) + 15(3) = 65.
The annual cash flow of $65,000 is substantially less than the annual cash flow of $73,57
Do other rounding possibilities exist?
Exploring other rounding alternatives:
Integer solution: T = 3 and A = 3.
Objective function value: $282,000(3) + $400,000(3) = $3,738,000.
Infeasible.
Because $3,738,000 > $2,000,000, the available funds with Eastborne.
The rounded solution of T = 2 and A = 4 is also infeasible for the same reason.
At this point, the best feasible integer solution to the problem:
Rounding to two townhouses and three apartment buildings.
With an annual cash flow of $65,000.
Unfortunately, it is not known if this solution is the best integer solution to the problem.
Rounding to an integer solution is a trial-and-error approach.
Each rounded solution must be evaluated for feasibility as well as for its impact on the va
Even when a rounded solution is feasible, there is no guarantee that the optimal integer s
What is the true feasible region for the Eastborne Realty problem?
As shown in Figure 9.1, the feasible region is the set of integer points that lie within the fe
There are 20 such feasible solutions (designated by blue dots in the figure).
The region bounded by the dashed lines is known as the convex hull of the set of feasib
Solving Integer Optimization Problems with Excel Solver
The worksheet formulation and solution for integer linear programs is similar to that for lin
But some additional information must be provided when setting up the Solver Parameters
Constraints must be added in the Solver Parameters dialog box to identify the integer var
In addition, the value for Tolerance in the Integer Options dialog box may need to be
A cautionary note about sensitivity analysis
Sensitivity analysis often is more crucial for integer linear programming problems than for
A small change in one of the coefficients in the constraints can cause a relatively large ch
ms with the additional requirement that one or more variables must be integer.
er linear programming.
es are required to be integer.

y the values 0 or 1.
linear program: The linear program that results from dropping the integer requirements.
o these new properties.
and the number of apartment buildings to purchase to maximize annual cash flow.
a fractional number of apartment buildings is unacceptable.

Funds Avl. 2,000.00 Cell Name Original Value
Mgr. Time Avl. 140.00 $F$55 Max annual cash 70.00
Townhouse Avl. 5.00
Variable Cells
$F$53 Units to produc 4.00
$G$53 Units to produce 2.00
Constraints
Cell Name Cell Value
$F$58 Budget Used 1,928.00
$F$59 Mgr. Time Used 96.00
$F$60 Townhouses Avl. 4.00
$F$53:$G$53=Integer
Blue dots - Feasible region solution

- yung whole number lang
nstraint and the Available Funds constraint.
s of townhouses and apartment buildings.
n an acceptable integer solution.

oduction scheduling problem might call for the production of 15,132.4
solution of 15,132 cases would probably have minimal impact on the
the solution.
major impact on the value of the objective function or feasibility,

ubstantial economic impact on the problem:
h apartment building costs $400,000.
e annual cash flow of $73,574 provided by the solution to the LP Relaxation.
3) = $3,738,000.
e funds with Eastborne.

the same reason.
r solution to the problem.
ll as for its impact on the value of the objective function.

ee that the optimal integer solution has been found.
er points that lie within the feasible region of the LP Relaxation.

s in the figure).
vex hull of the set of feasible integer solutions.
grams is similar to that for linear programming problems.

ng up the Solver Parameters and Options dialog boxes.
ox to identify the integer variables.
s dialog box may need to be adjusted to obtain a solution.
gramming problems than for linear programming problems.

n cause a relatively large change in the value of the optimal solution.
Final Value
70.00
Final Value Integer

4.00 Integer
2.00 Integer
Formula Status Slack
$F$58<=$G$58 Not Bindin 72 unused funds
$F$59<=$G$59 Not Bindin 44
$F$60<=$G$60 Not Bindin 1
Applications Involving Binary Variables (CAPITAL BUDGETING)
Capital budgeting problem: A binary integer programming problem that involves choosing which
In a capital budgeting problem, the objective function is to maximize the net present value of the c
Illustration
The Ice-Cold Refrigerator Company is considering investing in several projects that have varying c
Faced with limited capital each year, management would like to select the most profitable projects
Let us define four binary decision variables:

P = 1 if the plant expansion project is accepted; 0 if rejected
W = 1 if the warehouse expansion project is accepted; 0 if rejected
M = 1 if the new machinery project is accepted; 0 if rejected
R = 1 if the new product research project is accepted; 0 if rejected
This problem has four constraints:
One for the funds available in each of the next four years.
A binary integer linear programming model (thousands of dollars):
Objective Max 90P + 40W + 10M + 37R
Constraints 15P + 10W + 10M + 15R ≤ 40 (Year 1 capital available)
20P + 15W + 10R ≤ 50 (Year 2 capital available)
20P + 20W + 10R ≤ 40 (Year 3 capital available)
15P + 5W + 4M + 10R ≤ 35 (Year 4 capital available)
P, W, M, R = 0, 1
Parameters
Warehouse New
Plant Expansion Expansion Machinery
Present Value 90,000.00 40,000.00 10,000.00
Year 1 Cap Req 15,000.00 10,000.00 10,000.00
Year 2 Cap Req 20,000.00 15,000.00
Year 3 Cap Req 20,000.00 20,000.00
Year 4 Cap Req 15,000.00 5,000.00 4,000.00
Model
Warehouse New
Plant Expansion Expansion Machinery
Investment Plan 1.00 1.00 1.00
Net preveny Value 140,000.00
Spent Available
Year 1 35,000.00 40,000.00
Year 2 35,000.00 50,000.00
Year 3 40,000.00 40,000.00
Year 4 24,000.00 35,000.00
Choose yung mga may values ng 1

nvolves choosing which possible projects or activities provide the best investment return.
t present value of the capital budgeting projects.
ects that have varying capital requirements over the next four years.
most profitable projects that it can afford.

Cell Name
New product Total Capital $F$53 Net preveny
Research
37,000.00
15,000.00 40,000.00 Variable Cells
10,000.00 50,000.00 Cell Name
10,000.00 40,000.00 $F$51 Investment
10,000.00 35,000.00 $G$51 Investment
$H$51 Investment
$I$51 Investment
New product
Research Constraints
- Cell Name
$F$56 Year 1 Spen
$F$57 Year 2 Spen
$F$58 Year 3 Spen
$F$59 Year 4 Spen
$F$51:$I$51=Binary
Original Value Final Value
140,000.00 140,000.00
Original Value Final Value Integer

1.00 1.00 Binary
1.00 1.00 Binary
1.00 1.00 Binary
- - Binary
Cell Value Formula Status Slack

35,000.00 $F$56<=$G$56 Not Bindin 5000
35,000.00 $F$57<=$G$57 Not Bindin 15000
40,000.00 $F$58<=$G$58 Binding 0
24,000.00 $F$59<=$G$59 Not Bindin 11000
Applications Involving Binary Variables (FIXED COSTS)
In many applications, the cost of production has two components:

a setup cost, which is a fixed cost.
a variable cost, which is directly related to the production quantity.
Fixed-cost problem: A binary mixed-integer programming problem in which the binary variables rep
Illustration
Consider the production problem faced by RMC Inc.

Three raw materials are used to produce three products:
a fuel additive
a solvent base
a carpet cleaning fluid
Decision variables used are:
F = tons of fuel additive produced
S = tons of solvent base produced
C = tons of carpet cleaning fluid produced
A linear programming model of the RMC problem:
Objective Max 40F + 30S + 50C
Constraints 0.4F + 0.5S + 0.6C ≤ 20 Material 1
0.2S + 0.1C ≤ 5 Material 2
0.6F + 0.3S + 0.3C ≤ 21 Material 3
F, S, C ≥ 0
Suppose that the RMC data are available concerning the setup cost and the maximum production qu
The modeling flexibility provided by binary variables can now be used to incorporate the fixed setup c
The binary variables are defined as:
SF = 1 if the fuel additive is produced; 0 if not
SS = 1 if the solvent base is produced; 0 if not
SC = 1 if the carpet cleaning fluid is produced; 0 if not
The fixed-cost model for the RMC problem with setups:

Objective Max 40F + 30S + 50C – 200SF – 50SS – 400SC
Constraints 0.4F + 0.5S + 0.6C ≤ 20 Material 1
0.2S + 0.1C ≤ 5 Material 2
0.6F + 0.3S + 0.3C ≤ 21 Material 3
F ≤ 50SF Maximum Fuel Additive
S ≤ 25SS Maximum Solvent Base
C ≤ 40SC Maximum Carpet Cleaning
Non-negativity F, S, C ≥ 0; SF, SS, SC = 0 or 1
Parameters
Material Requirement (tons)

Fuel Solvent Cleaning Total
Materials Additive Base Fluid Available
1 0.40 0.50 0.60 20.00
2 0.20 0.10 5.00
3 0.60 0.30 3.00 21.00
Profit per to 40.00 30.00 50.00
Set up cost 200.00 50.00 400.00
Capacity 50.00 25.00 40.00
Models
Fuel Solvent Cleaning
Additive Base Fluid
Tons produced 25.00 20.00 -
Setup decisions 1.00 1.00 -
Max profit 1,350.00
Materials Used/Produced Availability

1 20.00 20.00
2 4.00 5.00
3 21.00 21.00
F 25.00 50.00
S 20.00 25.00
C - -
which the binary variables represent whether an activity, such as a production run, is undertaken (variable = 1) or not (variable =
d the maximum production quantity for each of the three products.

incorporate the fixed setup costs into the production model.
et Cleaning

$E$62 Max profit - 1,350.00
Available
Variable Cells
$E$59 Tons produ - 25.00 Contin
$F$59 Tons produ - 20.00 Contin
$G$59 Tons produc - - Contin
$E$60 Setup decis - 1.00 Binary
$F$60 Setup decis - 1.00 Binary
$G$60 Setup decis - - Binary
Constraints
$E$66 Used/Prod 20.00 $E$66<=$F$66 Binding 0
$E$67 Used/Prod 4.00 $E$67<=$F$67 Not Bindin 1
$E$68 Used/Prod 21.00 $E$68<=$F$68 Binding 0
$E$69 F Used/Pro 25.00 $E$69<=$F$69 Not Bindin 25
$E$70 S Used/Pro 20.00 $E$70<=$F$70 Not Bindin 5
$E$71 C Used/Pro - $E$71<=$F$71 Binding 0
$E$60:$G$60=Binary
ble = 1) or not (variable = 0).
Applications involving Binary Variables (LOCATION PROBLEMS)
Location problem: A binary integer programming problem in which the objective is to select the best l
Variations of this problem are known as covering problems.
Illustration
The long-range planning department for the Ohio Trust Company is considering expanding its operatio
Currently, Ohio Trust does not have a principal place of business in any of the 20 counties.
To establish a new principal place of business, Ohio Trust must either obtain approval for a new bank
Objective: All of these countrie

of principal place of business.
Ilan at ano lang dapat ang ilala

As an initial step in its planning, Ohio Trust would like to determine the minimum number of PPBs nece
A binary integer programming model can be used to solve this location problem for Ohio Trust.
Define the variables:
xi = 1 if a PPB is established in county i; 0 otherwise
The complete statement of the bank location problem:
Optimal Solution to the Ohio Trust Location Problem
Ohio Trust Bank Location
Parameters 1 means share a border, 0 not Note that the diagonal elements are 1.
1 2 3 4 5 6
Ashtabula 1 1 1 0 0 0 0
Lake 2 1 1 1 0 0 0
Cuyahoga 3 0 1 1 1 0 0
Lorain 4 0 0 1 1 1 0
Huron 5 0 0 0 1 1 1
Richland 6 0 0 0 0 1 1
Ashland 7 0 0 0 1 1 1
Wayne 8 0 0 0 0 0 0
Medina 9 0 0 1 1 0 0
Summit 10 0 0 1 0 0 0
Stark 11 0 0 0 0 0 0
Geauga 12 1 1 1 0 0 0
Portage 13 0 0 1 0 0 0
Columbian 14 0 0 0 0 0 0
Mahoning 15 0 0 0 0 0 0
Trumbull 16 1 0 0 0 0 0
Knox 17 0 0 0 0 0 1
Holmes 18 0 0 0 0 0 0
Tuscarawa 19 0 0 0 0 0 0
Carroll 20 0 0 0 0 0 0
Model
Ashtabula Lake Cuyahoga Lorain Huron Richland
Location of PPB 0 0 0 0 0 0
Minimize PPB 3
Covered? Cell
Ashtabula 1 >= 1 $E$124
Lake 1 >= 1
Cuyahoga 1 >= 1
Lorain 1 >= 1 Variable Cells
Huron 1 >= 1 Cell
Richland 1 >= 1 $E$122
Ashland 1 >= 1 $F$122
Wayne 2 >= 1 $G$122
Medina 1 >= 1 $H$122
Summit 2 >= 1 $I$122
Stark 1 >= 1 $J$122
Geauga 1 >= 1 $K$122
Portage 2 >= 1 $L$122
Columbian 1 >= 1 $M$122
Mahoning 1 >= 1 $N$122
Trumbull 1 >= 1 $O$122
Knox 1 >= 1 $P$122
Holmes 2 >= 1 $Q$122
Tuscarawa 1 >= 1 $R$122
Carroll 1 >= 1 $S$122
$T$122
$U$122
$V$122
$W$122
$X$122
jective is to select the best locations to meet a stated objective.
ering expanding its operation into a 20-county region in northeastern Ohio.

the 20 counties.
in approval for a new bank from the state’s superintendent of banks or purchase an existing bank.
jective: All of these countries must be covered, with the minimum possible number
principal place of business.
n at ano lang dapat ang ilalagay para macover lahat ng countries na ito
imum number of PPBs necessary to do business throughout the 20-county region.
blem for Ohio Trust.
diagonal elements are 1.
7 8 9 10 11 12 13
0 0 0 0 0 1 0
0 0 0 0 0 1 0
0 0 1 1 0 1 1
1 0 1 0 0 0 0
1 0 0 0 0 0 0
1 0 0 0 0 0 0
1 1 1 0 0 0 0
1 1 1 1 1 0 0
1 1 1 1 0 0 0
0 1 1 1 1 1 1
0 1 0 1 1 0 1
0 0 0 1 0 1 1
0 0 0 1 1 1 1
0 0 0 0 1 0 0
0 0 0 0 1 0 1
0 0 0 0 0 1 1
1 0 0 0 0 0 0
1 1 0 0 1 0 0
0 0 0 0 1 0 0
0 0 0 0 1 0 0
Ashland Wayne Medina Summit Stark Geauga Portage

1 0 0 0 1 1 0
Name Original Value Final Value

Minimize PPB Ashtabula 0 3
Constraints
Name Original Value Final Value Integer
Location of PPB Ashtabula 0 0 Binary
Location of PPB Lake 0 0 Binary
Location of PPB Cuyahoga 0 0 Binary
Location of PPB Lorain 0 0 Binary
Location of PPB Huron 0 0 Binary
Location of PPB Richland 0 0 Binary
Location of PPB Ashland 0 1 Binary
Location of PPB Wayne 0 0 Binary
Location of PPB Medina 0 0 Binary
Location of PPB Summit 0 0 Binary
Location of PPB Stark 0 1 Binary
Location of PPB Geauga 0 1 Binary
Location of PPB Portage 0 0 Binary
Location of PPB Columbiana 0 0 Binary
Location of PPB Mahoning 0 0 Binary
Location of PPB Trumbull 0 0 Binary
Location of PPB Knox 0 0 Binary
Location of PPB Holmes 0 0 Binary
Location of PPB Tuscarawas 0 0 Binary
Location of PPB Carroll 0 0 Binary
14 15 16 17 18 19 20
0 0 1 0 0 0 0
0 0 0 0 0 0 0
0 0 0 0 0 0 0
0 0 0 0 0 0 0
0 0 0 0 0 0 0
0 0 0 1 0 0 0
0 0 0 1 1 0 0
0 0 0 0 1 0 0
0 0 0 0 0 0 0
0 0 0 0 0 0 0
1 1 0 0 1 1 1
0 0 1 0 0 0 0
0 1 1 0 0 0 0
1 1 0 0 0 0 1
1 1 1 0 0 0 0
0 1 1 0 0 0 0
0 0 0 1 1 0 0
0 0 0 1 1 1 0
0 0 0 0 1 1 1
1 0 0 0 0 1 1
Columbiana Mahoning Trumbull Knox Holmes TuscarawasCarroll

0 0 0 0 0 0 0
Constraints
$D$127 Ashtabula Covered? 1 $D$127>=$F$127 Binding 0
$D$128 Lake Covered? 1 $D$128>=$F$128 Binding 0
$D$129 Cuyahoga Covered? 1 $D$129>=$F$129 Binding 0
$D$130 Lorain Covered? 1 $D$130>=$F$130 Binding 0
$D$131 Huron Covered? 1 $D$131>=$F$131 Binding 0
$D$132 Richland Covered? 1 $D$132>=$F$132 Binding 0
$D$133 Ashland Covered? 1 $D$133>=$F$133 Binding 0
$D$134 Wayne Covered? 2 $D$134>=$F$134 Not Bindin 1
$D$135 Medina Covered? 1 $D$135>=$F$135 Binding 0
$D$136 Summit Covered? 2 $D$136>=$F$136 Not Bindin 1
$D$137 Stark Covered? 1 $D$137>=$F$137 Binding 0
$D$138 Geauga Covered? 1 $D$138>=$F$138 Binding 0
$D$139 Portage Covered? 2 $D$139>=$F$139 Not Bindin 1
$D$140 Columbiana Covered? 1 $D$140>=$F$140 Binding 0
$D$141 Mahoning Covered? 1 $D$141>=$F$141 Binding 0
$D$142 Trumbull Covered? 1 $D$142>=$F$142 Binding 0
$D$143 Knox Covered? 1 $D$143>=$F$143 Binding 0
$D$144 Holmes Covered? 2 $D$144>=$F$144 Not Bindin 1
$D$145 Tuscarawas Covered? 1 $D$145>=$F$145 Binding 0
$D$146 Carroll Covered? 1 $D$146>=$F$146 Binding 0
$E$122:$X$122=Binary
Application Involving Binary Variables (CONJOINT ANALYSIS)
Conjoint analysis: A market research technique that can be used to learn how prospective buyers o
Product design and market share optimization problem: Sometimes called the share of choice pr
The results of conjoint analysis can be used in an integer programming model of a product design an
Part-worth: Utility value that a consumer attaches to each level of each attribute.
Illustration
Salem Foods is planning to enter the frozen pizza market.

Currently, two existing brands, Antonio’s and King’s, have the major share of the market.
In trying to develop a sausage pizza that will capture a substantial share of the market, Salem determ
Crust: thin and thick
Cheese: mozzarella and blend
Sauce: smooth and chunky
Sausage flavor: mild, medium, and hot
In a typical conjoint analysis, a sample of consumers is asked to express their preference for a produ
Then regression analysis is used to determine the part-worth for each of the attribute levels.
The part-worths can be used to determine the overall value (utility) that each consumer attaches to a
In general, each consumer’s utility for a particular type of pizza is the sum of the part-worths for the a
Salem must design a pizza (choose the type of crust, cheese, sauce, and sausage flavor) that will ha
Assuming the sample of eight consumers in the current study is representative of the marketplace for
Formulate and solve an integer programming model that can help Salem come up with such a des
The decision variables are defined as:
lij = 1 if Salem chooses level i for attribute j; 0 otherwise
yk = 1 if consumer k chooses the Salem brand; 0 otherwise
Model for the Salem pizza problem

Objective Max y1 + y2 + . . . + y8
Constraints
The optimal solution to this 17-variable, 12-constraint integer linear program:
l11 = l22 = l23 = l14 = 1 and y1 = y2 = y6 = y7 = 1.
The value of the optimal solution is 4.
Indicating that if Salem makes this type of pizza, it will be preferable to the current favorite for four
With l11 = l22 = l23 = l14 = 1, the pizza design that obtains the largest market share for Salem has
Note also that with y1 = y2 = y6 = y7 = 1, consumers 2, 5, 6, and 7 will prefer the Salem pizza.
Parameters
Crust Cheese Sauce Sausage Flavor

Consumer Thin Thick Mozzarella Blend Smooth Chunky Mild
1 11.00 2.00 6.00 7.00 3.00 17.00 26.00
2 11.00 7.00 15.00 17.00 16.00 26.00 14.00
3 7.00 5.00 8.00 14.00 16.00 7.00 29.00
4 13.00 20.00 20.00 17.00 17.00 14.00 25.00
5 2.00 8.00 6.00 11.00 30.00 20.00 15.00
6 12.00 17.00 11.00 9.00 2.00 30.00 22.00
7 9.00 19.00 12.00 16.00 16.00 25.00 30.00
8 5.00 9.00 4.00 14.00 23.00 16.00 16.00
Model
Thin Thick Mozzarella Blend Smooth Chunky Mild
1 0 0 1 0 1 1
Max share 4
Customer decision
Consumer 1 61 >= 53.00 1
Consumer 2 68 >= 59.00 1
Consumer 3 57 >= - 0
Consumer 6 73 >= 71.00 1
Consumer 7 80 >= 80.00 1
Crust 1 = 1
Cheese 1 = 1
Sauce 1 = 1
Sausage 1 = 1
how prospective buyers of a product value the product’s attributes.
ed the share of choice problem, the choice of a product design that maximizes the number of consumers preferring it.
el of a product design and market share optimization problem.
f the market.
he market, Salem determined that the four most important attributes when consumers purchase a frozen sausage pizza are cru
eir preference for a product with chosen levels for the attributes.
the attribute levels.
h consumer attaches to a particular type of pizza.

the part-worths for the attributes of that type of pizza.
ausage flavor) that will have the highest utility for a sufficient number of people to ensure sufficient sales to justify making the pr
ve of the marketplace for frozen sausage pizza:
come up with such a design. In marketing literature, the problem being solved is called the share of choice problem.
e current favorite for four of the eight consumers.
arket share for Salem has a thin crust, a cheese blend, a chunky sauce, and mild-flavored sausage.
efer the Salem pizza.

Sausage Flavor Current $E$83 Max share 4
Medium Hot Favorite
27.00 8.00 52.00
1.00 10.00 58.00 Variable Cells
16.00 19.00 66.00 Cell Name Original Value
29.00 10.00 83.00 $D$81 Thin 1
5.00 12.00 58.00 $E$81 Thick 0
12.00 20.00 70.00 $F$81 Mozzarella 0
23.00 19.00 79.00 $G$81 Blend 1
30.00 3.00 59.00 $H$81 Smooth 0
$I$81 Chunky 1
$J$81 Mild 1
$K$81 Medium 0
Medium Hot $L$81 Hot 0
0 0 $I$85 >= Custome 1
$I$86 >= Custome 1
$I$87 >= Custome 0
$I$88 >= Custome 0
$I$89 >= Custome 0
$I$90 >= Custome 1
$I$91 >= Custome 1
$I$92 >= Custome 0
Constraints
Cell Name Cell Value
$D$85 Consumer 1 61
$D$86 Consumer 2 68
$D$87 Consumer 3 57
$D$88 Consumer 4 69
$D$89 Consumer 5 48
$D$90 Consumer 6 73
$D$91 Consumer 7 80
$D$92 Consumer 8 51
$D$94 Crust Thin 1
$D$95 Cheese Thi 1
$D$96 Sauce Thin 1
$D$97 Sausage Th 1
$D$81:$L$81=Binary
$I$85:$I$92=Binary
er of consumers preferring it.
urchase a frozen sausage pizza are crust, cheese, sauce, and sausage flavor.
sufficient sales to justify making the product.
he share of choice problem.

d sausage.
Final Value
4
Final Value Integer

1 Binary
0 Binary
0 Binary
1 Binary
0 Binary
1 Binary
1 Binary
0 Binary
0 Binary
1 Binary
1 Binary
0 Binary
0 Binary
0 Binary
1 Binary
1 Binary
0 Binary
Formula Status Slack

$D$85>=$F$85 Not Bindin 8
$D$91>=$F$91 Binding 0
$D$94=$F$94 Binding 0
Modeling Flexibility Provided by Binary Variables
Binary integer variables can be used to model:

Multiple-choice and mutually exclusive constraints.
Situations in which k projects out of a set of n projects must be selected.
Situations in which the acceptance of one project is conditional on the acceptance of another pro
Multiple-Choice and Mutually Exclusive Constraints
Multiple-choice constraint: A constraint requiring that the sum of two or more binary variables equ
Thus, any feasible solution makes a choice of which variable to set equal to one.
Mutually exclusive constraint: A constraint requiring that the sum of two or more binary variables b
Thus, if one of the variables equals one, the others must equal zero.
However, all variables could equal zero.
Illustration
Ice-Cold Refrigerator capital budgeting problem:

W1 = 1 if the original warehouse expansion project is accepted; 0 if rejected
W2 = 1 if the second warehouse expansion project is accepted; 0 if rejected
W3 = 1 if the third warehouse expansion project is accepted; 0 if rejected
The multiple-choice constraint reflecting the requirement that exactly one of these projects must be s
W1 + W2 + W3 = 1
If the requirement that one warehouse must be expanded did not exist, the multiple-choice constrain
W1 + W2 + W3 = 1
It allows for the case of no warehouse expansion: W1 = W2 = W3 = 0.
It does not permit more than one warehouse to be expanded.
This resulted in a mutually exclusive constraint.
k out of n alternatives constraint: A constraint that requires the sum of n binary variables to equal
An extension of the multiple-choice constraint.
In the capital budgeting problem, suppose that W1, W2, W3, W4, and W5 represent five potential wa
Constraint satisfying this new requirement:
W1 + W2 + W3 + W4 + W5 = 2
If no more than two of the projects are to be selected:
W1 + W2 + W3 + W4 + W5 ≤ 2
Conditional constraint: A constraint involving binary variables that does not allow certain variables
In the capital budgeting problem, suppose that the warehouse expansion project was conditional on
With P representing plant expansion and W representing warehouse expansion:
Conditional constraint: W ≤ P
P and W must each be 0 or 1.
When P is 0, W will be forced to 0.
When P is 1, W is allowed to be 1.
Both the plant and the warehouse can be expanded.
Corequisite constraint: A constraint requiring that two binary variables be equal and that thus are b
In the capital budgeting problem, if the warehouse expansion project had to be accepted whenever t
P and W represented corequisite constraint projects.
To model such a situation, write the preceding constraint as an equality:
W = P
The constraint forces P and W to take on the same value.
he acceptance of another project.
or more binary variables equals one.

equal to one.
two or more binary variables be less than or equal to one.
ne of these projects must be selected:
, the multiple-choice constraint could be modified as:
of n binary variables to equal k.
W5 represent five potential warehouse expansion projects and that two of the five projects must be accepted.
oes not allow certain variables to equal one unless certain other variables are equal to one.
on project was conditional on the plant expansion project.
e expansion:
s be equal and that thus are both either in or out of the solution together.
ad to be accepted whenever the plant expansion project was, and vice versa:
Generating Alternatives in Binary Optimization
If alternative optimal solutions exist, it would be good for management to know this:
Because some factors that make one alternative preferred over another might not be included in th
If the solution is a unique optimal solution:
It would be good to know how much worse the second-best solution is than the unique optimal solu
If the second-best solution is very close to optimal:
It might be preferred over the true optimal solution because of factors outside the model.
A Second-best Solution to the Ohio Trust Location Problem
Ohio Trust Bank Location
Parameters 1 means share a border, 0 not Note that the diagonal elements
1 2 3 4 5 6
Ashtabula 1 1 1 0 0 0 0
Lake 2 1 1 1 0 0 0
Cuyahoga 3 0 1 1 1 0 0
Lorain 4 0 0 1 1 1 0
Huron 5 0 0 0 1 1 1
Richland 6 0 0 0 0 1 1
Ashland 7 0 0 0 1 1 1
Wayne 8 0 0 0 0 0 0
Medina 9 0 0 1 1 0 0
Summit 10 0 0 1 0 0 0
Stark 11 0 0 0 0 0 0
Geauga 12 1 1 1 0 0 0
Portage 13 0 0 1 0 0 0
Columbiana 14 0 0 0 0 0 0
Mahoning 15 0 0 0 0 0 0
Trumbull 16 1 0 0 0 0 0
Knox 17 0 0 0 0 0 1
Holmes 18 0 0 0 0 0 0
Tuscarawas 19 0 0 0 0 0 0
Carroll 20 0 0 0 0 0 0
Model
Ashtabula Lake Cuyahoga Lorain Huron Richland
Location of PPB 1 0 0 1 0 1
Minimize PPB 4.00 *the next best solution will have 4 Alternative optimal s
location (w/ values of 1)
Covered? Set objective as con
Ashtabula 1 >= 1
Lake 1 >= 1
Cuyahoga 1 >= 1 Set variables with 0
Lorain 1 >= 1
Huron 2 >= 1
Richland 1 >= 1
Ashland 2 >= 1 Reference solution:
Wayne 1 >= 1 Alternative solution:
Medina 1 >= 1
Summit 1 >= 1
Stark 1 >= 1
Geauga 1 >= 1
Portage 1 >= 1
Columbiana 1 >= 1
Mahoning 1 >= 1
Trumbull 1 >= 1
Knox 1 >= 1
Holmes 1 >= 1
Tuscarawas 1 >= 1
Carroll 1 >= 1
ht not be included in the model.
he unique optimal solution.
e the model.
the diagonal elements are 1.
7 8 9 10 11 12 13 14 15 16
0 0 0 0 0 1 0 0 0 1
0 0 0 0 0 1 0 0 0 0
0 0 1 1 0 1 1 0 0 0
1 0 1 0 0 0 0 0 0 0
1 0 0 0 0 0 0 0 0 0
1 0 0 0 0 0 0 0 0 0
1 1 1 0 0 0 0 0 0 0
1 1 1 1 1 0 0 0 0 0
1 1 1 1 0 0 0 0 0 0
0 1 1 1 1 1 1 0 0 0
0 1 0 1 1 0 1 1 1 0
0 0 0 1 0 1 1 0 0 1
0 0 0 1 1 1 1 0 1 1
0 0 0 0 1 0 0 1 1 0
0 0 0 0 1 0 1 1 1 1
0 0 0 0 0 1 1 0 1 1
1 0 0 0 0 0 0 0 0 0
1 1 0 0 1 0 0 0 0 0
0 0 0 0 1 0 0 0 0 0
0 0 0 0 1 0 0 1 0 0
Ashland Wayne Medina Summit Stark Geauga Portage ColumbianaMahoning Trumbull

0 0 0 0 1 0 0 0 0 0
1 1 1
Alternative optimal solution:
Set objective as constraints

No. of locations 3.00 = 3.00
Set variables with 0 values as new obejctive

Max location with zero values 3.00
Reference solution: 3,7,11,16

Alternative solution: 1,4,6,11
17 18 19 20
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
1 0 0 0
1 1 0 0
0 1 0 0
0 0 0 0
0 0 0 0
0 1 1 1
0 0 0 0
0 0 0 0
0 0 0 1
0 0 0 0
0 0 0 0
1 1 0 0
1 1 1 0
0 1 1 1
0 0 1 1
Knox Holmes TuscarawasCarroll

0 0 0 0

Business Analytics Solman

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Business Analytics Solman

Uploaded by

Copyright:

Available Formats

A SIMPLE MAXIMIZATION PROBLEM

Production requirement per golf bag

Production Time (Hours)

Department Number of hours

Required profit contribution

Mathematical model for the par inc problem

Objective: Max 10S + 9D

Manual solving: *See sa notebook

Production Time (hrs) Time Available

Total profit 7,668.00

Operation Hours used Hours available

Objective Cell (Max)

The answer report contains three sections.​

Microsoft Excel 16.0 Sensitivity Report

cision 0.000001, Use Automatic Scaling

lue of final of total profit is $7,668.​

Linear program for the M&D Chemicals problem:​

Minimize Total cost 800.00

Qty Min demand

Objective Cell (Min)

Microsoft Excel 16.0 Sensitivity Report

Investment Projected Rate of Return

Linear Programming Model

Objective: Max 0.073x1 + 0.103x2 + 0.064x3 + 0.075x4 + 0.045x5

Investment Projected Rate of Return

Total return 8,000.00

Objective Cell (Max)

Microsoft Excel 16.0 Sensitivity Report

me: 0.031 Seconds.

Unlimited, Iterations Unlimited, Precision 0.000001

Original Value Final Value

Original Value Final Value Integer

Cell Value Formula Status Slack

Final Reduced Objective Allowable Allowable

Final Shadow Constraint Allowable Allowable

The three-month forecast of demand for the distribution centers:

Figure 8.13 shows graphically the 12 distribution ro

Origin Boston Chicago St. Lous Lexington Supply

Total shipping cost 39,500.00

transportation cost for Foster Generators. ​

upply and each destination has a demand requirement. ​

ators transportation problem:

Microsoft Excel 16.0 Answer Report

Objective Cell (Min)

Exposure Quality 2,370.00

Actual Min Max

dia selection plan.​

Microsoft Excel 16.0 Answer Report

Final Value Constraints

Shadow Constraint Allowable Allowable

Origin Boston Chicago St. Lous Lexington Supply

Total shipping cost 39,500.00

New Objective 2,500.00

In the original solution (Figure 8.14): ​

General approach to find an alternative optimal solution to a linear program:​

Objective Cell (Max)

+ 3x24 + 2x31 + 5x32 + 4x33 + 5x34 = 39,500​

Origin Boston Chicago St. Lous Lexington Supply

Total shipping 39,500.00

of the other distribution centers is sourced by one plant. ​

Microsoft Excel 16.0 Sensitivity Report

Objective Allowable Allowable

Constraint Allowable Allowable

The answer report contains three sections.

lue of final of total profit is $7,668.

Linear program for the M&D Chemicals problem:

transportation cost for Foster Generators.

upply and each destination has a demand requirement.

dia selection plan.

In the original solution (Figure 8.14):

General approach to find an alternative optimal solution to a linear program:

+ 3x24 + 2x31 + 5x32 + 4x33 + 5x34 = 39,500

of the other distribution centers is sourced by one plant.

ll as for its impact on the value of the objective function.

er points that lie within the feasible region of the LP Relaxation.

grams is similar to that for linear programming problems.

gramming problems than for linear programming problems.

Let us define four binary decision variables:

In many applications, the cost of production has two components:

Consider the production problem faced by RMC Inc.

The fixed-cost model for the RMC problem with setups:

d the maximum production quantity for each of the three products.

ering expanding its operation into a 20-county region in northeastern Ohio.

Salem Foods is planning to enter the frozen pizza market.

h consumer attaches to a particular type of pizza.

sufficient sales to justify making the product.

he share of choice problem.

Binary integer variables can be used to model:

Ice-Cold Refrigerator capital budgeting problem:

or more binary variables equals one.

ne of these projects must be selected:

, the multiple-choice constraint could be modified as:

of n binary variables to equal k.

he unique optimal solution.