01 Bcon141 Mod3 Lesson10 LinearProgramming

Bcon 141 – Introduction to
Business Economics
Module 4: Business Optimization using
Linear Programming
Ian Dave B. Custodio

Instructor
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Lesson 10: Linear Programming
Learning objectives:
- Define Linear Programming
- Differentiate the various assumptions of Linear Programming
- Determine each of the components of a Linear Programming model
- Solve Linear Programming problems
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Outline
10.1 Linear Programming: Definition and Properties
10.2 LP Model Components
10.3 Steps of Model Formulation
10.4 Finding Solution
10.4.1 Graphical Solution
10.4.2 Mathematical Solution
10.4.3 Computer Solution using Excel Add-ins: Solver and OM/QM
10.5 Special Cases of LPP
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10.1 Linear Programming:

Definition and Properties
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Linear Programming
- it is a model that consists of linear relationships representing a firm’s decision(s),
given an objective and resource constraints.
- a tool in Mathematics for solving optimization problems.
optimization (mathematical optimization): is one in which some function (objective)

is either maximized or minimized relative to a given set of constraints.
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Many major decisions faced by a manager of a business focus on the best way to
achieve the objectives of the firm, subject to the restrictions placed on the manager
by the operating environment.
These restrictions can take the form of limited resources, such as time, labor, energy,
material, or money; or they can be in the form of restrictive guidelines, such as a
recipe for making cereal or engineering specifications.
The objectives of a business frequently are to maximize profit or minimize cost.

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Properties (or assumptions):

1. Proportionality
2. Additivity
3. Divisibility
4. Certainty
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1. Proportionality
- implies that the marginal rate of contribution to the objective for each variable is
assumed to remain constant throughout the entire range of activity levels in the
problem.
This means, if the product contributes P20 towards the profit, then the total
contribution would be equal to 20x1, where x1 is the number of units of the product.
For example:
5 units of the product = P100
10 units of the product = P200
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2. Additivity
- implies that the contribution of the variables to the objective is assumed to be the
sum of their individual weighted contributions.
The total value of the objective function is equal to the sum of the contributions of
each variable to the objective function.
TPr = 𝑃1X1 + 𝑃2𝑋2+ 𝑃3𝑋3
where: TPr = Total Profit, P are profit for each product X

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3. Divisibility
- means that the variables can take on any non-negative value including fractional
values (the variables are said to be continuous or divisible, as opposed to integer or
discrete values).
For example:
10 1/4 maple tables
5.5 cherry tables
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4. Certainty
- means that the problem is assumed to have no probabilistic elements (such as
changes on input prices for labor, raw materials, etc.).
For example:
The net profit per cherry table is 2,000, but this value depends upon the tables’ cost,
the cost of materials, and the sale price wherein all of which could be random
variables.
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10.2 LP Model Components

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Linear Programming Model Components

1. Decision variables
2. Objective function
3. Constraints
4. Parameters
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1. Decision variables (unknowns)

- mathematical symbols (e.g. characters, letters) representing the decisions to be
made.
Examples: x1 = number of cherry tables to be made

x2 = number of pine tables to be made
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2. 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.
Examples: Maximize Profit

Minimize Costs
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3. Constraints
– requirements or restrictions placed on the firm by the operating environment, stated
in linear relationships of the decision variables.
Examples: x1 + x2 >= 1,000 hectares

x1 <= 500 hectares
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4. Parameters
- numerical coefficients and constants used in the objective function and constraints.
Examples: Pr = 10x1 + 5x2

x1 + x2 >= 1,000
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10.3 Steps of Model

Formulation
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Steps of Model Formulation

Step 1 : Define the decision variables
(What do you want to know or to determine?)
Step 2 : Define the objective function

(Maximize? or Minimize?)
Step 3 : Define the constraints

(What are the limitations on resources?)
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A Maximization Problem Example

Philippine Pottery Company is a small crafts operation run by a Native Filipino Tribal
Council. The company employs skilled artisans to produce clay bowls and mugs with
authentic native Filipino designs and colors. The two primary resources used by the
company are special pottery clay and skilled labor. The bowl needs 1hr of labor and needs
4kls of clay while the mug needs 2hrs of labor and 3kls of clay. Bowl yields a profit of P40
while mug yields P50. There are 40 hours of labor and 120 kls of clay available each day
for production.
Given those limited resources, the company desires to know how many bowls and mugs
to produce each day in order to maximize profit.
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Resource Requirements
Labor Clay Profit

Product
(hr/unit) (kg/unit) (P/unit)
Bowl 1 4 40
Mug 2 3 50
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Step 1 : Define the decision variables

What is/are the decision variables of the problem?
Step 2 : Define the objective function

What is the objective function?
Step 3 : Define the constraints

What is/are the constraints?
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Resource Availability: 40 hrs of labor per day

120 kls of clay
Decision Variables: x1 = number of bowls to produce per day
x2 = number of mugs to produce per day
Objective Function: Maximize Z = P40x1 + P50x2
Where Z = profit per day
Resource Constraints: 1x1 + 2x2 ≤ 40 hours of labor
4x1 + 3x2 ≤ 120 pounds of clay
Non-Negativity Constraints: x ≥ 10; x2 ≥ 0
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Complete Linear Programming Model of the problem:
Maximize Z = P40x1 + P50x2
subject to: 1x1 + 2x2 ≤ 40

4x1 + 3x2 ≤ 120
x ≥ 10; x2 ≥ 0
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10.4 Finding Solution

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1. Graphical Solution
2. Mathematical Approaches:
1.1 Substitution
- Substitute one variable in terms of the other equation.
1.2 Elimination (via Addition or Subtraction)
- Eliminate one of the variables by adding/subtracting the equations
then find the value of the remaining variable.
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3. Computer Solutions (using MS Excel/ Excel Add-in):

3.1 Graphical
3.2 Solver
3.3 OM/QM
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10.4.1 Graphical Solution

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Graphical Solution
- one of the most used solution for solving Linear Programming problems which only
involves two decision variables.
- it solves the problem by plotting the functions and constraints in a graph and
determine the most feasible solution.
- “geometric approach”
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Feasible vs. Infeasible Solution

Feasible Solution
- Solution does not violate any of the constraints
Infeasible Solution
- Solution violates at least one of the constraints
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Complete Linear Programming Model of the previous problem:

4x1 + 3x2 ≤ 120
x ≥ 10; x2 ≥ 0
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Feasible Solution
Example: x1 = 5 bowls
x2 = 10 mugs
Z = P40x1 + P50x2 = P700
Labor constraint check: 1x1 + 2x2 ≤ 40

1(5) + 2(10) = 25 ≤ 40 hours
Clay constraint check: 4x1 + 3x2 ≤ 20
4(5) + 3(10) = 50 ≤ 120 kls
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Infeasible Solution
Example: x1 = 10 bowls
x2 = 20 mugs
Z = P40x1 + P50x2 = P1400
Labor constraint check: 1x1 + 2x2 ≤ 40

1(10) + 2(20) = 50 > 40 hours
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Steps of the graphical method:

1. Plot the model constraints as equations on the graph; then, considering the
inequalities of the constraints, indicate the feasible solution area.
2. Plot the objective function; then, move this line out from the origin to locate the
optimal solution point.
3. Solve simultaneous equations at the solution point to find the optimal solution
values.
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Alternative (same for Step 1):

2. Solve simultaneous equations at each corner point to find the solution values at
each point.
3. Substitute these values into the objective function to find the set of values that
results in the maximum Z value.
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Coordinates for Graphical Analysis
X2 are mugs

subject to: 1x1 + 2x2  40
4x1 + 3x2  120
x1, x2  0
X1 are bowls
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Graph of the labor constraint

4x1 + 3x2  120
x1, x2  0
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Labor constraint area

4x1 + 3x2  120
x1, x2  0
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The constraint area for clay

4x1 + 3x2  120
x1, x2  0
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Graph of both constraints

4x1 + 3x2  120
x1, x2  0
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Feasible region
-the set of all points that satisfy all the
constraints of the model(s).

4x1 + 3x2  120
x1, x2  0
The feasible solution area on the constraints

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Finding the optimal solution:

1. Isoprofit Approach
-“iso” means equal/same
-the profit anywhere on the line is
the same.

4x1 + 3x2  120
x1, x2  0
Objective function line for Z = $800

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Alternative objective function lines for profits, Z, of P800, P1,200, and P1,600

4x1 + 3x2  120
x1, x2  0
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Identification of the optimal solution point

4x1 + 3x2  120
x1, x2  0
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Optimal solution coordinates

4x1 + 3x2  120
x1, x2  0
Point B coordinates:
x1 = 24
x2 = 8
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Finding the optimal solution:

2. Corner Point Solution
-the optimal solution to a LPP,
if it exists, occurs at the corners (vertex)
of the feasible region.

4x1 + 3x2  120
x1, x2  0
Solutions at each corner points
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10.4.2 Mathematical Solution

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Mathematical Solutions
Substitution
- Substitute one variable in terms of the other equation.
Elimination (via Addition or Subtraction)

- Eliminate one of the variables by adding/subtracting the equations then find the
value of the remaining variable.
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Maximize: Z = P40x1 + P50x2

4x1 + 3x2 ≤ 120
x ≥ 10; x2 ≥ 0
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10.4.3 Computer Solution using Excel

Add-ins: Solver and OM/QM
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2.1 Graphical Solution (using Excel 2013)

Plug in the data (derived coordinates)
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1. Highlight the
coordinates of the
first constraint.
2 4
5 2. Go to “Insert” Tab
3
3. Select
“Recommended
Charts”
4. Select “All Charts”

and click “X Y
Scatter”
1
5. Select “Scatter
with Straight Lines”
6. Select the second

image showing a
single a straight line
and click “OK”
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Right click on the Letter “B” at the top of the graph and click “Delete”.
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1. Click anywhere on
the graph.
2. Select the funnel

like icon.
3. Click on the
“Select Data…”
1 2 menu on the bottom
part of the window
that popped up.
3
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1. Select “B” and

click “Edit”
1
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1. Delete all the

contents on the
“Series Name”
2. Click the encircled

1 2 icon.
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1. Then click on the

cell that contains the
word “Labor
Constraint”
2 2. Click back the

1
encircled icon.
3
3. Empty the “Series
X values:”
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1. Click the encircled

icon.
2. Our X-axis values

are the x1 values for
both points, so
highlight the x1
values on Point A
2 and B. (0, 40)
3. Click back on the

1
encircled icon.
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1. Empty the “Series

Y values:” then click
the encircled icon.
2. Our Y-axis values

are the x2 values for
both points, so
highlight the x2
values on Point A
and B. (20, 0)
2
1 3. Click back on the
encircled icon and
click OK on the
bottom part of the
window.
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1. So we’re done
with the first
constraint and now
we will incorporate
the second
constraint (Point C
and Point D) on the
graph. Start by
clicking “Add”
1
2. Just follow the
same steps (from
the previous four
slides) on
constructing the
graph of the first
constraint.
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Once done, you should have the same graph as shown below. Just click “OK” to finish
setting up the graph of both constraints.
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We need to reduce the intervals of the data points in each axis in order to determine
the coordinates of the optimal point (point of intersection).
1. Start on the x-
axis. Right Click on
any of the values (0
– 45) on the x-axis
and select “Format
Axis” on the menu.
1
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1. Change the
value of the “Major”
submenu under the
“Units” menu from
“5.0” to “1.0” and
press enter on the
keyboard in order
to have a detailed
scaling on the x-
axis.
1 2. Repeat the same

step for the y-axis.
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Enlarge the graph and we can now determine the coordinates of the optimal point
(24,8).
x1 (x-axis): 24
x2 (y-axis): 8
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2.2 Solver Add-in (using Excel 2013)

Load first the Solver Add-in by following the instructions (for Windows OS) below
from the official Microsoft Support (http://bit.ly/installsolver)
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Plug in the data (based on the given of the problem) with the following format.
Non-negativity Constraint
Objective Function
Constraints
Results area. Cells highlighted

in yellow will reveal the
solution.
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Highlight the
resulting cells of
the objective and
the constraints
(B11, B12, B13)
and insert the
formula shown in
the picture. After
the MMULT,
highlight the given
of the objective and
the constraint
(B2:C7) and after
the TRANPOSE
highlight the
resulting values of
x1 and x2
(B15:C15).
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Once done typing the formula, press “Ctrl + Shift + Enter” on the keyboard to have
the following output.
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Go to “Data” tab and on the rightmost menu, click on “Solver” and the Solver window
will pop-up.
1
2
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If all are set, then

Choose according to the objective you can now solve
Title of the problem the problem by
clicking the “Solve”
button at the
bottom of the
Solver widow.
Make sure to tick the checkbox
Choose “Simplex LP”

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Click “OK” on the window that will pop-up and you now have the answer.
Max Profit =
1,360
Optimal Combination: x1=24, x2=8
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2.3 OM/QM Add-in (using Excel 2013)

Install first the OM/QM (Weiss or Taylor’s version) add-in by downloading from this
link:
bit.ly/EXCELOMQM-WEISSv4
Once finished downloading, double click the file and follow the installation process.
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1. After double clicking the file, a window will pop-up, Just click “Next”
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2. Click “Next”
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3. Choose 32 bit, if there’s an error that will pop-up saying that it is not compatible,
then choose 64 bit and then click “Next”
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4. Click “Next”
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5. And lastly, click “Next”. After clicking the Next button, the installation window will
disappear, and Excel OM/QM is already installed. You can now enable the add-in by
following the same steps of the Solver Add-in.
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Open a new excel workbook, go to File > Options > Add-ins > Select “Excel Add-ins”
on the Manage Menu and click “Go…”. This window will pop-up. Make sure to check
both Excel OM/QM and Solver Add-in and click “OK”.
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Once already enabled, a new tab named “Excel QM” will appear.
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To use the add-in, go to Excel QM tab and click “By Chapter”, then click “Chapters
2,3,4; Linear Programming” menu.
1
2
3
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A window will pop-up. Fill in the needed information and once done, click “OK”.
Title of the problem
Enter the number of constraints

(in our example, we have two
constraints, labor and clay)
Enter the number of decision
Choose according to
the objective of the variables (in our example, we
problem have two decision variables, x1
and x2)
Those are just the important parameters/menus needed to be adjusted
according to the problem. Just leave the other menus “as is”.
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Input the given of the problem on the orange highlighted areas. Leave the other items
“as is”.
Constraint 1 is the Labor Constraint Total Available

Resources
Constraint 2 is the Clay Constraint
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In order to solve the problem, OM/QM also utilizes the Solver Add-in. To solve, go to
“Data” tab, click “Solver” and directly click the “Solve” button.
1 2
3
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Another solver window again will pop-up, just click “OK” and you now have the
answer.
Optimal Combination: x1=24, x2=8

Profit = 1, 360
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10.5 Special Cases of Linear

Programming Problems
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Special types of problems include those with:

1. Multiple optimal solutions
2. Infeasible solutions
3. Unbounded solutions
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1. Multiple optimal solutions

The objective function is
parallel to a constraint line.
Maximize Z = 40x1 + 30x2
4x2 + 3x2  120
x1, x2  0
where:
x1 = number of bowls
x2 = number of mugs
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The objective function is

parallel to a constraint line.
4x2 + 3x2  120
x1, x2  0
where:
x1 = number of bowls
x2 = number of mugs
Graph of an example with multiple optimal solutions
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2. Infeasible solutions
Every possible solution
violates at least one constraint:

x1  4
x2  6
x1, x2  0
Graph of an infeasible problem
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3. Unbounded solutions
The value of the objective
function increases indefinitely:

subject to: x1  4
x2  2
x1, x2  0
Graph of an unbounded problem

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References:
Taylor, B. W. (2016). Introduction to Management Science. Pearson Education, Inc.
Stevenson, W. and Ozgur, C. (2007). Introduction to Management Science with Spreadsheets. The McGraw-Hill
Companies, Inc.
Fabry, J. (2003). Operations Research. University of Economics Prague - Faculty of Informatics and Statistics
THANK YOU!
Ian Dave B. Custodio Visayas Socio-Economic Research and

Instructor I Data Analytics Center
Visayas Socio-Economic Research and 1st Floor, Department of Economics, Visayas State University
Data Analytics Center (ViSERDAC), VSU 6521-A Baybay City, Leyte, Philippines
E-mail: idcustodio@vsu.edu.ph E-mail: viserdac@vsu.edu.ph
Telephone: 053 563 7064 local 1121 Telephone: 053 563 7064 local 1121

01 Bcon141 Mod3 Lesson10 LinearProgramming

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01 Bcon141 Mod3 Lesson10 LinearProgramming

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Bcon 141 – Introduction to

Ian Dave B. Custodio

Lesson 10: Linear Programming

10.1 Linear Programming:

- a tool in Mathematics for solving optimization problems.

optimization (mathematical optimization): is one in which some function (objective)

The objectives of a business frequently are to maximize profit or minimize cost.

Properties (or assumptions):

TPr = 𝑃1X1 + 𝑃2𝑋2+ 𝑃3𝑋3

where: TPr = Total Profit, P are profit for each product X

10.2 LP Model Components

Linear Programming Model Components

1. Decision variables (unknowns)

Examples: x1 = number of cherry tables to be made

Examples: Maximize Profit

Examples: x1 + x2 >= 1,000 hectares

Examples: Pr = 10x1 + 5x2

10.3 Steps of Model

Steps of Model Formulation

Step 2 : Define the objective function

Step 3 : Define the constraints

A Maximization Problem Example

Labor Clay Profit

Step 1 : Define the decision variables

Step 2 : Define the objective function

Step 3 : Define the constraints

Resource Availability: 40 hrs of labor per day

Complete Linear Programming Model of the problem:

Maximize Z = P40x1 + P50x2

subject to: 1x1 + 2x2 ≤ 40

10.4 Finding Solution

3. Computer Solutions (using MS Excel/ Excel Add-in):

10.4.1 Graphical Solution

Feasible vs. Infeasible Solution

Complete Linear Programming Model of the previous problem:

Maximize Z = P40x1 + P50x2

subject to: 1x1 + 2x2 ≤ 40

Labor constraint check: 1x1 + 2x2 ≤ 40

Labor constraint check: 1x1 + 2x2 ≤ 40

Steps of the graphical method:

Alternative (same for Step 1):

Coordinates for Graphical Analysis

Maximize Z = P40x1 + P50x2

Graph of the labor constraint

Maximize Z = P40x1 + P50x2

Labor constraint area

Maximize Z = P40x1 + P50x2

The constraint area for clay

Maximize Z = P40x1 + P50x2

Graph of both constraints

Maximize Z = P40x1 + P50x2

Maximize Z = P40x1 + P50x2

The feasible solution area on the constraints

Finding the optimal solution:

Maximize Z = P40x1 + P50x2

Objective function line for Z = $800

Maximize Z = P40x1 + P50x2

Identification of the optimal solution point

Maximize Z = P40x1 + P50x2

Optimal solution coordinates

Maximize Z = P40x1 + P50x2

Finding the optimal solution: