DSME 6620

Decision Models and Applications

Lecture Three

Linear Programming II

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DSME 6620
Decision Models and Applications

Agenda

• Review of LP

• Blending problem

• Transportation problem

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DSME 6620
Decision Models and Applications

Review of LP

• Decision variables: What must be decided?

– Should describe the decisions to be made

In the microcomputer problem: production quantities of Type

I and Type II Microcomputer

• Objective function: What measure will the decision

maker want to optimize?
– The decision maker wants to maximize (usually
revenue or profit) or minimize (usually cost) some
function of decision variables

In the microcomputer problem: maximize profit

• Constraints: What restrictions limit the choices?

– Restrictions placed on a decision variable or a group
of decision variables

In the microcomputer problem: assembly time constraint,

inspection time constraint, storage space constraint, and
nonnegativity

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DSME 6620
Decision Models and Applications

Blending Problem

Chandler Oil has 5,000 barrels of crude oil 1 and

10,000 barrels of crude oil 2 available. Chandler sells
gasoline and heating oil. These products are produced
by blending together the two crude oils.

Each barrel of crude oil 1 has a “quality level” of 10

and each barrel of crude oil 2 has a quality level of 5.
Gasoline must have an average quality level of at least
8, whereas heating oil must have an average quality
level of 6. Gasoline sells for $25 per barrel, and
heating oil sells for $20 per barrel. We assume that the
demand for gasoline and heating oil is unlimited, so
that all of Chandler’s production can be sold.

Chandler wants to maximize its revenue from selling

gasoline and heating oil.

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DSME 6620
Decision Models and Applications

Blending Problem

Analysis & Formulation

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DSME 6620
Decision Models and Applications

Blending Problem

Question 1: What are the shadow prices of the two

resources, crude oil 1 and crude oil 2?

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DSME 6620
Decision Models and Applications

Blending Problem

Question 2: Suppose the selling price of gasoline is varying

in the market. What is the range of price variation within
which there is no need to modify the current plan of
blending?

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DSME 6620
Decision Models and Applications

Transportation Problem

The Grand Prix Auto Company manufactures

automobiles in three plants and then ship them to four
sales regions of the country. The plants can supply the
amounts listed in the last column of the table below. The
customer demands by regions are listed in the bottom
row of the table, and the unit costs of shipping an
automobile from each plant to each region are listed in
the middle of the table.

Region 1 Region 2 Region 3 Region 4

Capacity
Plant A 131 218 266 120 450
Plant B 250 116 263 278 600
Plant C 178 132 122 180 500
Demand 450 200 300 300

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DSME 6620
Decision Models and Applications

Transportation Problem

A network representation can be:

Plants Sales regions Demand

Capcity 1 450
131
A 250
450 218
266
120 116 2 200

600 B
263
178 3 300
132
122
500 C 278
180
4 300

Grand Prix wants to find the lowest-cost shipping plan

for meeting the demands of the four regions without
exceeding the capacities of the plants.

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DSME 6620
Decision Models and Applications

Transportation Problem

Analysis & Formulation

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DSME 6620
Decision Models and Applications

Transportation Problem

Question 1: Assume for some reason, the management

wants to invest 50 units of extra capacity to exactly one of
the three plants. To which plant will the addition of the
extra capacity bring the largest reduction of shipping cost?

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DSME 6620
Decision Models and Applications

Transportation Problem

Question 2: Currently the optimal solution suggests no

shipment from plant A to region 2. One probable reason
could be the relatively high shipping cost associated with
that route (that is, $218 per unit). Assume there is a
substantial reduction in that unit shipping cost. Should the
management consider shipping some units along that route?

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