Session 1 - Introduction and Graphical Method To Solve LPP

Module Title: Quantitative Methods and Statistics
Session 1
Linear Programming for Quantitative Decision Making
1
Faculty of Management and Commerce
Session Topics
▪ The Management Science Approach to Problem Solving
▪ Model Building: Break-Even Analysis
▪ Computer Solution
▪ Management Science Modeling Techniques
▪ Business Usage of Management Science Techniques
▪ Management Science Models in Decision Support Systems
2
Session Topics Continued
◼ Model Formulation
◼ A Maximization Model Example
◼ Graphical Solutions of Linear Programming Models
◼ A Minimization Model Example
◼ Irregular Types of Linear Programming Models
◼ Characteristics of Linear Programming Problems
3
Introduction to Operations Research
Operations research/management science is defined as:
‘A scientific approach to decision making, which seeks to determine
how best to design and operate a system, usually under conditions
requiring the allocation of scarce resources.’ - Winston
‘A scientific method of providing executive departments with a
quantitative basis for decisions regarding the operations under their
control.’ - Kimball & Morse
4
The Management Science Approach
• Management science uses a scientific approach to solving

management problems
• Used in a variety of organizations to solve many different types
of problems
• Encompasses a logical mathematical approach to problem
solving
• Management science, also known as operations research,
quantitative methods, etc., involves a philosophy of problem
solving in a logical manner
5
The Management Science Process
Figure : The Management Science Process

6
Steps in the Management Science Process
▪ Observation - Identification of a problem that exists (or may
occur soon) in a system or organization
▪ Definition of the Problem - problem must be clearly and
consistently defined, showing its boundaries and interactions
with the objectives of the organization
▪ Model Construction - Development of the functional
mathematical relationships that describe the decision variables,
objective function and constraints of the problem
▪ Model Solution - Models solved using management science
techniques
▪ Model Implementation - Actual use of the model or its solution
7
Example of Model Construction (1 of 3)
Consider a business firm that makes and sells a product. The product costs ₹ 5 to
produce and sells for ₹ 20. Assume that the product is made from steel and that the
business firm has 100 pounds of steel available. If it takes 4 pounds of steel to make
each unit of the product, develop a model that computes the total profit that will
accrue from the items.
Information and Data:
▪ Business firm makes and sells a steel product
▪ Product costs Rs.5 to produce
▪ Product sells for Rs.20
▪ Product requires 4 pounds of steel to make
▪ Firm has 100 pounds of steel
Business Problem:
▪ Determine the number of units to produce to make the most profit, given the
limited amount of steel available
8
Variables: x = # units to produce (decision variable)

Z = total profit (in Rs.)
Model: Z = 20x – 5x (objective function)
4x = 100 lb of steel (resource constraint)
Parameters: Rs.20, Rs.5, 4 lbs, 100 lbs (known values)
Formal Specification of Model:
maximize Z =20x – 5x
subject to 4x = 100
9
Model Solution:
Solve the constraint equation:
4x = 100
(4x)/4 = (100)/4
x = 25 units
Substitute this value into the profit function:
Z = 20x – 5x
= (20)(25) – (5)(25)
= 375
(Produce 25 units, to yield a profit of Rs.375)
10
Model Building: Break-Even Analysis (1 of 9)
■ Used to determine the number of units of a product to

sell or produce that will equate total revenue with
total cost
■ The volume at which total revenue equals total cost is
called the break-even point
■ Profit at break-even point is zero
11
Model Components
• Fixed Cost (cf) - costs that remain constant regardless of
number of units produced
• Variable Cost (cv) - unit production cost of product
• Volume (v) – the number of units produced or sold
• Total variable cost (vcv) - function of volume (v) and unit
variable cost
12
Model Components
• Total Cost (TC) - total fixed cost plus total variable cost.
TC = c f + vcv
• Profit (Z) - difference between total revenue vp (p =

unit price) and total cost, i.e.
Z = vp - c f - vcv
13
Computing the Break-Even Point

The break-even point is that volume at which total
revenue equals total cost and profit is zero:
vp − c f − vcv = 0
v( p − cv ) = c f
cf
The break-even point v=
p − cv
14
Example: Western Clothing Company
Fixed Costs: cf = Rs.10000

Variable Costs: cv = Rs.8 per pair
Price : p = Rs.23 per pair
The Break-Even Point is:
v = (10,000)/(23 -8)
= 666.7 pairs
15
Figure 1.2 Break Even Chart
16
Figure 1.3 Break Even Chart with Change in revenue
17
Figure 1.4 Break Even Chart with Change in variable cost
18
Figure 1.4 Break Even Chart with Change in fixed cost
19
Break-Even Analysis: Excel Solution (1 of 5)
Figure 1.5 Break Even Analysis: Excel solution
20
Classification of Management Science Techniques
Modelling Techniques
Figure : Modeling Techniques
21
Characteristics of Modeling Techniques
◼ Linear Mathematical Programming - clear objective; restrictions
on resources and requirements; parameters known with
certainty
◼ Probabilistic Techniques - results contain uncertainty
◼ Network Techniques - model often formulated as diagram;
deterministic or probabilistic
◼ Other Techniques - variety of deterministic and probabilistic
methods for specific types of problems including forecasting,
inventory, simulation, multicriteria, etc.
22
Business Use of Management Science
• Some application areas:

- Project Planning
- Capital Budgeting
- Inventory Analysis
- Production Planning
- Scheduling
• Interfaces - Applications journal published by Institute for
Operations Research and Management Sciences (INFORMS)
23
Decision Support Systems (DSS)
A decision support system is a computer-based system that helps
decision makers address complex problems that cut across
different parts of an organization and operations
Features of Decision Support Systems
– Interactive
– Use databases & management science models
– Address “what if” questions
– Perform sensitivity analysis
Examples include:
ERP – Enterprise Resource Planning
OLAP – Online Analytical Processing
24
Management Science Models
Decision Support Systems (2 of 2)
Figure : A Decision Support System
25
Linear Programming: Model Formulation and
Graphical Solution
26
Linear Programming: An Overview
◼ Objectives of business decisions frequently involve maximizing
profit or minimizing costs
◼ Linear programming uses linear algebraic relationships to
represent a firm’s decisions, given a business objective, and
resource constraints
◼ Steps in application:
1. Identify problem as solvable by linear programming
2. Formulate a mathematical model of the unstructured
problem
3. Solve the model
4. Implementation
27
Model Components
• Decision variables - mathematical symbols representing levels
of activity of a firm
• Objective function - a linear mathematical relationship
describing an objective of the firm, in terms of decision
variables - this function is to be maximized or minimized
• Constraints – requirements or restrictions placed on the firm
by the operating environment, stated in linear relationships of
the decision variables
• Parameters - numerical coefficients and constants used in the
objective function and constraints
28
Summary of Model Formulation Steps
Step 1 : Clearly define the decision variables
Step 2 : Construct the objective function
Step 3 : Formulate the constraints
29
LP Model Formulation A Maximization Example
Beaver Creek Pottery Company is a small crafts operation run by a Native American
tribal council. The company employs skilled artisans to produce clay bowls and
mugs with authentic Native American designs and colors. The two primary
resources used by the company are special pottery clay and skilled labor. Given
these limited resources, the company desires to know how many bowls and mugs
to produce each day in order to maximize profit. The two products have the
following resource requirements for production and profit per item produced (i.e.,
the model parameters):
This scenario is illustrated in Figure 1.8

30
LP Model Formulation
A Maximization Example (1 of 4)
• Product mix problem - Beaver Creek Pottery Company
• How many bowls and mugs should be produced to maximize
profits given labor and materials constraints?
• Product resource requirements and unit profit:
Resource Requirements
Labor Clay Profit

Product
(Hr./Unit) (Lb./Unit) (Rs./Unit)
Bowl 1 4 40
Mug 2 3 50
31
Figure 1.8 Process in A Beaver Creek Pottery Company
32
Resource 40 hrs of labor per day
Availability: 120 lbs of clay
Decision x1 = number of bowls to produce per day
Variables: x2 = number of mugs to produce per day
Objective Maximize Z = 40x1 + 50x2
Function: Where Z = profit per day in Rs.
Resource 1x1 + 2x2  40 hours of labor
Constraints: 4x1 + 3x2  120 pounds of clay
Non-Negativity x1  0; x2  0
Constraints:
33
Complete Linear Programming Model:
Maximize Z = 40x1 + 50x2
subject to: 1x1 + 2x2  40

4x1 + 3x2  120
x1, x2  0
34
Feasible Solutions
A feasible solution does not violate any of the constraints:
Example: x1 = 5 bowls
x2 = 10 mugs
Z = 40x1 + 50x2 = 700
Labor constraint check: 1(5) + 2(10) = 25 < 40 hours

Clay constraint check: 4(5) + 3(10) = 70 < 120 pounds
35
Infeasible Solutions
An infeasible solution violates at least one of the constraints:
Example: x1 = 10 bowls
x2 = 20 mugs
Z = 40x1 + 50x2 = 1400
(Z is in Rs.)
Labor constraint check: 1(10) + 2(20) = 50 > 40 hours
36
Graphical Solution of LP Models
• Graphical solution is limited to linear programming

models containing only two decision variables (can
be used with three variables but only with great
difficulty)
• Graphical methods provide visualization of how a
solution for a linear programming problem is
obtained
37
Coordinate Axes
Graphical Solution of Maximization Model (1 of 12)
X2 is mugs

4x1 + 3x2  120
x1, x2  0
X1 is bowls
Figure 1.9: Coordinates for Graphical Analysis
38
Labor Constraint
Z is Profit in Rs.
4x1 + 3x2  120
x1, x2  0
Figure 1.10: Graph of Labor Constraint

39
Labor Constraint Area
Z is Profit in Rs.
4x1 + 3x2  120
x1, x2  0
Figure 1.11: Labor Constraint Area

40
Clay Constraint Area

4x1 + 3x2  120
x1, x2  0
Figure 1.12 : Clay Constraint Area

41
Both Constraints
Z is in Rs.
4x1 + 3x2  120
x1, x2  0
Figure1.13 : Graph of Both Model Constraints

42
Feasible Solution Area

4x1 + 3x2  120
x1, x2  0
Figure 1.14: Feasible Solution Area 43

Objective Function Solution = Rs.800
Z is Profit in Rs.
4x1 + 3x2  120
x1, x2  0
Figure 1.15 : Objective Function Line for Z = Rs.800

44
Alternative Objective Function Solution Lines
Z is in Rs.
4x1 + 3x2  120
x1, x2  0
Figure1.16: Alternative Objective Function Lines

45
Optimal Solution

4x1 + 3x2  120
x1, x2  0
Figure 1.17: Identification of Optimal Solution Point

46
Optimal Solution Coordinates
Z is Profit in Rs.
4x1 + 3x2  120
x1, x2  0
Figure 1.18 : Optimal Solution Coordinates 47

Extreme (Corner) Point Solutions
Z is Profit in Rs.
4x1 + 3x2  120
x1, x2  0
Figure1.19: Solutions at All Corner Points

48
Optimal Solution for New Objective Function
Z is Profit in Rs.
4x1+ 3x2  120
x1, x2  0
Figure 1.20: Optimal Solution with Z = 70x1 + 20x2 49

Slack Variables
◼ Standard form requires that all constraints be in the form
of equations (equalities)
◼ A slack variable is added to a  constraint (weak
inequality) to convert it to an equation (=)
◼ A slack variable typically represents an unused resource
◼ A slack variable contributes nothing to the objective
function value
50
Linear Programming Model: Standard Form
Max Z = 40x1 + 50x2 + 0s1 + 0s2

subject to:1x1 + 2x2 + s1 = 40
4x2 + 3x2 + s2 = 120
x1, x2, s1, s2  0
Where:
x1 = number of bowls
x2 = number of mugs
s1, s2 are slack variables
Figure 1.21: Solution Points A, B, and C with Slack 51

LP Model Formulation – Minimization
Farmer is preparing to plant a crop in the spring and needs to
fertilize a field. There are two brands of fertilizer to choose from,
Super-grow and Crop-quick. Each brand yields a specific amount of
nitrogen and phosphate per bag, as follows:
Chemical Contribution
Nitrogen Phosphate
Brand
(lb/bag) (lb/bag)
Super-gro 2 4
Crop-quick 4 3
The farmer’s field requires at least 16 pounds of nitrogen and at

least 24 pounds of phosphate. Super-grow costs ₹ 6 per bag, and
Crop-quick costs ₹ 3. The farmer wants to know how many bags of
each brand to purchase in order to minimize the total cost of
fertilizing.
52
LP Model Formulation – Minimization (1 of 8)
◼ Two brands of fertilizer available - Super-grow, Crop-quick
◼ Field requires at least 16 pounds of nitrogen and 24 pounds of
phosphate
◼ Super-grow costs Rs.6 per bag, Crop-quick Rs.3 per bag
◼ Problem: How much of each brand to purchase to minimize total
cost of fertilizer given following data ?
Chemical Contribution
Nitrogen Phosphate
Brand
(lb/bag) (lb/bag)
Super-gro 2 4
Crop-quick 4 3
This scenario is illustrated in Figure.1.22

53
Figure1.22: Fertilizing farmer’s field
54
Decision Variables:
x1 = bags of Super-gro
x2 = bags of Crop-quick
The Objective Function:

Minimize Z = 6x1 + 3x2
Where: Rs.6x1 = cost of bags of Super- Gro
Rs.3x2 = cost of bags of Crop-Quick
Z is the Total Cost in Rs.
Model Constraints:
2x1 + 4x2  16 lb (nitrogen constraint)
4x1 + 3x2  24 lb (phosphate constraint)
x1, x2  0 (non-negativity constraint)
55
Constraint Graph – Minimization (4 of 8)
Z is Total Cost in Rs.

subject to: 2x1 + 4x2  16
4x1 + 3x2  24
x1, x2  0
Figure 1.23: Graph of Both Model Constraints

56
Feasible Region– Minimization (5 of 8)
Z is Total Cost in Rs.

4x1 + 3x2  24
x1, x2  0
Figure 1.24: Feasible Solution Area

57
Optimal Solution Point – Minimization (6 of 8)

4x1 + 3x2  24
x1, x2  0
Figure 1.25: Optimum Solution Point

58
Surplus Variables – Minimization (7 of 8)
◼ A surplus variable is subtracted from a  constraint to
convert it to an equation (=)
◼ A surplus variable represents an excess above a
constraint requirement level
◼ A surplus variable contributes nothing to the calculated
value of the objective function
◼ Subtracting surplus variables in the farmer problem
constraints:
2x1 + 4x2 - s1 = 16 (nitrogen)
4x1 + 3x2 - s2 = 24 (phosphate)
59
Graphical Solutions – Minimization (8 of 8)
Minimize Z = 6x1 + 3x2 + 0s1 + 0s2

subject to: 2x1 + 4x2 – s1 = 16
4x1 + 3x2 – s2 = 24
x1, x2, s1, s2  0
Figure 1.26: Graph of Fertilizer Example

60
Irregular Types of Linear Programming Problems
For some linear programming models, the general rules do
not apply.
• Special types of problems include those with:
▪ Multiple optimal solutions
▪ Infeasible solutions
▪ Unbounded solutions
61
Multiple Optimal Solutions Beaver Creek Pottery
The objective function is

parallel to a constraint line.
Maximize Z=40x1 + 30x2
4x1 + 3x2  120
x1, x2  0
Where:
x1 = number of bowls
x2 = number of mugs
Figure 1.27: Example with Multiple Optimal Solutions

62
An Infeasible Problem
Every possible solution

violates at least one constraint:
x1  4
x2  6
x1, x2  0
Figure 1.28: Graph of an Infeasible Problem

63
An Unbounded Problem
Value of the objective

function increases indefinitely:
subject to: x1  4
x2  2
x1, x2  0
Figure 1.29: Graph of an Unbounded Problem

64
Characteristics of Linear Programming Problems
• A decision amongst alternative courses of action is required
• Decision is represented in the model by decision variables
• Problem encompasses a goal, expressed as an objective
function, that the decision maker wants to achieve
• Restrictions (represented by constraints) exist that limit the
extent of achievement of the objective
• The objective and constraints must be definable by linear
mathematical functional relationships
65
Properties of Linear Programming Models
• Proportionality - The rate of change (slope) of the objective

function and constraint equations is constant
• Additivity - Terms in the objective function and constraint
equations must be additive
• Divisibility -Decision variables can take on any fractional value
and are therefore continuous as opposed to integer in nature
• Certainty - Values of all the model parameters are assumed to
be known with certainty (non-probabilistic)
66
Problem Statement
Example Problem No. 1
Moore’s Company produces a food mixture in 1,000-pound batches. The mixture
contains two ingredients— A and B . The cost per pound of each of these
ingredients is as follows:
Ingredient Cost/lb.
A ₹3
B ₹5
Each batch has the following recipe requirements:

a. At least 500 pounds of A
b. At least 200 pounds of B
The ratio of A to B must be at least 2 to 1. The company wants to know the
optimal mixture of ingredients that will minimize cost. Formulate a linear
programming model for this problem.
67
Problem Statement
Example Problem No. 1 (1 of 3)
■ Hot dog mixture in 1000-pound batches
■ Two ingredients, chicken (Rs.3/lb) and beef (Rs.5/lb)
■ Recipe requirements:
at least 500 pounds of “A”
at least 200 pounds of “B”
■ Ratio of chicken to beef must be at least 2 to 1
■ Determine optimal mixture of ingredients that will minimize
costs
68
Solution
Step 1:
Identify decision variables.
x1 = lb of A in mixture
x2 = lb of B in mixture
Step 2:
Formulate the objective function.
where Z = cost per 1,000-lb batch in Rs.
3x1 = cost of A
5x2 = cost of B
69
Solution
Step 3:
Establish Model Constraints
x1 + x2 = 1,000 lb
x1  500 lb of A
x2  200 lb of B
x1/x2  2/1 or x1 - 2x2  0
x1, x2  0
The Model: Minimize Z = 3x1 + 5x2
subject to: x1 + x2 = 1,000 lb
x1  50
x2  200
x1 - 2x2  0
x1,x2  0
70
Solve the following model

graphically:
subject to: x1 + 2x2  10
6x1 + 6x2  36
x1  4
x1, x2  0
Step 1: Plot the constraints

as equations
Figure 1.30: Constraint Equations

71

6x1 + 6x2  36
x1  4
x1, x2  0
Step 2: Determine the feasible
solution space
Figure 1.31: Feasible Solution Space and Extreme Points

72

6x1 + 6x2  36
x1  4
x1, x2  0
Step 3 and 4: Determine the
solution points and optimal
solution
Figure 1.32: Optimal Solution Point

73
Summary
• Introduction to the concepts of Management Science/Operations
Research has been discussed with reference to origin, history,
application
• Several illustrations have been used to formulate the Linear
Programming Problem in relation to objective function and
constraints
• The meaning of Feasible and Infeasible solutions has been
discussed graphically
• Demonstration of Maximisation and Minimisation problems has
been done graphically
• Examples of Bounded and Unbounded solutions have been
graphically analysed
74

Session 1 - Introduction and Graphical Method To Solve LPP

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Module Title: Quantitative Methods and Statistics

• Management science uses a scientific approach to solving

Figure : The Management Science Process

Variables: x = # units to produce (decision variable)

■ Used to determine the number of units of a product to

• Profit (Z) - difference between total revenue vp (p =

Computing the Break-Even Point

Example: Western Clothing Company

Fixed Costs: cf = Rs.10000

The Break-Even Point is:

Figure 1.2 Break Even Chart

Figure 1.3 Break Even Chart with Change in revenue

Figure 1.4 Break Even Chart with Change in variable cost

Figure 1.4 Break Even Chart with Change in fixed cost

Figure 1.5 Break Even Analysis: Excel solution

Figure : Modeling Techniques

• Some application areas:

Figure : A Decision Support System

Step 1 : Clearly define the decision variables

Step 2 : Construct the objective function

Step 3 : Formulate the constraints

This scenario is illustrated in Figure 1.8

Labor Clay Profit

Figure 1.8 Process in A Beaver Creek Pottery Company

Maximize Z = 40x1 + 50x2

subject to: 1x1 + 2x2  40

A feasible solution does not violate any of the constraints:

Labor constraint check: 1(5) + 2(10) = 25 < 40 hours

An infeasible solution violates at least one of the constraints:

Labor constraint check: 1(10) + 2(20) = 50 > 40 hours

• Graphical solution is limited to linear programming

Maximize Z = 40x1 + 50x2

Figure 1.10: Graph of Labor Constraint

Figure 1.11: Labor Constraint Area

Maximize Z = 40x1 + 50x2

Figure 1.12 : Clay Constraint Area

Figure1.13 : Graph of Both Model Constraints

Maximize Z = 40x1 + 50x2

Figure 1.14: Feasible Solution Area 43

Figure 1.15 : Objective Function Line for Z = Rs.800

Figure1.16: Alternative Objective Function Lines

Maximize Z = 40x1 + 50x2

Figure 1.17: Identification of Optimal Solution Point

Figure 1.18 : Optimal Solution Coordinates 47

Figure1.19: Solutions at All Corner Points

Figure 1.20: Optimal Solution with Z = 70x1 + 20x2 49

Max Z = 40x1 + 50x2 + 0s1 + 0s2

Figure 1.21: Solution Points A, B, and C with Slack 51

The farmer’s field requires at least 16 pounds of nitrogen and at

This scenario is illustrated in Figure.1.22

Figure1.22: Fertilizing farmer’s field

The Objective Function:

Z is Total Cost in Rs.

Figure 1.23: Graph of Both Model Constraints

Z is Total Cost in Rs.

Figure 1.24: Feasible Solution Area

Minimize Z = 6x1 + 3x2

Figure 1.25: Optimum Solution Point

Minimize Z = 6x1 + 3x2 + 0s1 + 0s2

Figure 1.26: Graph of Fertilizer Example

The objective function is

Figure 1.27: Example with Multiple Optimal Solutions

Every possible solution