Name: Bajan, Noralyn P.

BSAB-3 Offering No: D064

Instructor: Prof. Analita Salabao Class Schedule: TTh (8:30-10:00)

LINEAR PROGRAMMING ASSESSMENT

Formulate the decision variables, objective function, and constraints for each problem. Run
the analysis using any of the methods discussed in this lesson (graphical, using Solver Add-
in or LINDO program) and interpret the results.

1. Innis Investments manages funds for companies and wealthy clients. The investment
strategy is tailored to each client’s needs. For a new client, Innis has been authorized to
invest up to Php1.2 M in two investment funds: a stock fund and a money market fund.
Each unit of the stock fund costs Php50 and provides an annual rate of return of 10%,
each unit of the money market fund costs Php100 and provides an annual rate of return
of 4%. The client wants to minimize risk but earn an annual income from the investment
of at least Php60,000. According to Innis’s risk measurement system, each unit purchased
in the stock fund has a risk index of 8, and each unit purchased in the money market fund
has a risk index of 3; the higher risk index associated with the stock fund simply indicates
that it is a riskier investment. Innis’s client also has specified that at least Php300,000 be
invested in the money market fund. How many units of each fund should Innis purchase
for the client if the objective is to minimize the total risk index for the portfolio?

Data given

1,200,000 Invested in two funds

300,000 Money Market Fund

60,000 Annual income

Stock Fund (S) Money Market Fund (M)

Cost 50 100
Annual
Return 10% 4%
Index Risk 8 3
➢ Decision Variables:
⚫ Let S – the unit purchase in the stock fund
⚫ Let M – the unit purchase in the money
market fund

➢ Objective Function:
⚫ Min Z = 8S + 3M
➢ Constraints:
• Budget Invested Fund: 50S + 100M ≤ 1,200,000
• Minimum Return: 5S+4M ≥ 60,000
• Money market fund: M ≥ 300,000
• NN: S,M≥0
SOLUTIONS:

A. 50S + 100M ≤ 1,200,000 B. 5S+4M ≥ 60,000 C. M≥300,000

• When S= 0, then; • When S= 0, then; Parallel line to x-axis
50(0) + 100M = 1,200,000 5(0) + 4M = 60,000 A.
100𝑀 1,200,000 4𝑀 60,000 S 0 24,000
= =
100 100 4 4 M 12,000 0
M = 12,000 M = 15,000

• When M= 0, then; • When M= 0, then; B.

50S + 100(0) = 1,200,000 5S + 4(0) = 60,000 S 0 12,000

50𝑆 1,200,000 5𝑠 60,000 M 15,000 0

= =
50 50 5 5
S =24,000 S = 12,000

Graphical Method

❖ Problem has an infeasible solution. No feasible region exists, so there is no solution to

the problem.
2. The Goodwin Company drills offshore oil wells under contract to large oil companies. The
company’s owner, Jim Goodwin, needs to find an effective way of blending a liquid
solution which will provide a non-corrosive storage medium for the company’s tungsten
carbide drill bits. He has found through some experimentation that two reagents – Algine
and Benedroll – when properly blended, will provide an effective solution. One liter of the
solution mix must contain at least 0.2 liter, but no more than 0.6 liter of Algine. The amount
of Benedroll in the one-liter mix must be between 0.2 and 0.6 liter. Jim can obtain the
required amount of reagents in the mix by blending some amount of Yeltzflux and
Zinderfud into a low-cost chemically inert solvent. Yeltzflux is a readily obtained
commercial product costing $2.25 per liter; each liter of Yeltzflux contains 0.4-liter Algine
and 0.5-liter Benedroll along with other ingredients. Zinderfud is also readily available for
$2.38 per liter, and it contains 0.7liter Algine and 0.4-liter Benedroll. How much Yeltzflux
and Zinderfud to put in a oneliter blend of storage solution so the final blend contains the
proper levels of reagents at the minimum cost.

REAGENT Contains

Algine at least 0.2 liter, but no more than 0.6 liter

Benedroll between 0.2 and 0.6 liter

Cost Algine Benedroll

Yeltzflux $2.25 0.4 0.5

Zinderfud $2.38 0.7 0.4

➢ Decision Variables:
⚫Let x – the number of Yeltzflux in a
liter ⚫Let y – the number of Zinderfud
in a liter

➢ Objective Function:
⚫Min Z = $2.25x + $2.38y

➢ Constraints:

• Algine : 0.4x + 0.7y ≤ 1 Liter

• Benedroll : 0.5x + 0.4y ≤ 1Liter

• NN : x, y ≥ 0
Solutions:
A. 0.4x + 0.7y ≤ 1 B. 0.5x+0.4y≤ 1 A

• When x= 0, then; When x= 0, then; x 0 2.5

0.4(0) + 0.7y = 1 0.5(0) + 0.4y =1 y 1.43 0
0.7𝑌 1 0.4𝑌 1
= =
0.7 0.7 0.4 0.4
Y = 1.43 Y = 2.5

• When y= 0, then; When y= 0, then; B

0.4x + 0.7(0) = 1 0.5x + 0.4(0) =1 x 0 2
0.4𝑋 1 0.5𝑋 1 y 2.5 0
= =
0.4 0.4 0.5 0.5
X = 2.5 X=2

Graphical Methods
The value of the objective function at each of these extreme points is as
follows:

Extreme Point Objective function value

Lines through Extreme
Coordinates Z=2.25x+2.38y
Point
(x,y)
A (0,1.43) 0.4x+0.7y ≤1 2.25(0) +2.38(1.43) =3.4
x ≥0

B (0,0) x≥0 2.25(0) +2.38(0) =0

y≥0
C (2,0) 0.5x+0.4y≤1 2.25(2) +2.38(0) =4.5
y≥0
D (1.58,0.53) 0.4x+0.7y≤1 2.25(1.58) +2.38(0.53)
0.5x+0.4y≤1 =4.81

• The minimum value of the objective function Z=0 occurs at the extreme
point B (0,0). Hence, the optimal solution to the given LP problem is: x=0,
y=0 and min Z=0.