Steps to do

i. Understand the problem

ii. Identify the objective (max/min/lowest/highest) and the constraints
iii. Define the decision variables
iv. Use the decision variables to write objective and constraints in mathematical expression

Objective: Z = c1 x1 + c2 x2 ...
- Maximize profit / Minimize cost
- Maximize products sold/produced/ coverage
Constraints:
- Limited resource: budget, labor – working hour, capacity <=
- Minimum requirement: to produce, to purchase, to maintain relationship >=
- = “Exactly”

Tips:
- Look at the table

Practice 1: (15p)
The Win Big Gambling Club promotes gambling junkets to the Bahamas. They have $8,000 per week to spend
on advertising. Their goal is to reach the largest possible high-potential audience.
They need to place at least 5 radio spots per week, and no more than $1,800 can be spent on radio advertising
each week.
Media types and audience figures are shown in the following table.
Medium Audience reached per Adv Cost per Ad ($) Maximum Ads per week
TV spot 5,000 800 12
Daily newspaper 8,500 925 5
Radio spot 1 2,400 290 25
Radio spot 2 2,800 380 20

The amount
The number of advertisement using TV spot
The quantity

800x1 + 925x2 + 290x3 + 380x4 <= 8000

X3 + x4 >= 5
290x3 + 380x4 <= 1800
X1 < = 12
X2 <=
X1, x2, x3, x4 >= 0
Objective: reach the largest possible high-potential audience.
Constraint:
- Limited resource:
+ Constraint on money: max spend $8,000
+ Constraint on Maximum Ads per week
- Minimum requirement:
+ At least 5 radio spots/week
Practice 2: (20p)
Management Sciences Associates (MSA) is a marketing research firm.
MSA determines that it must fulfill several requirements in order to draw statistically valid conclusions.
- Survey at least 2,300 U.S. households
- Survey at least 1,000 households whose heads are 30 years of age or younger
- Survey at least 600 households whose heads are between 31 and 50 years of age
- Ensure that at least 15% of those surveyed live in a state that borders on Mexico
- Ensure that no more than 20% of those surveyed who are 51 years of age or over live in a state that
borders on Mexico
MSA decides that all surveys should be conducted in person.
It estimates the costs of reaching people in each age and region category are as follows
Cost per person surveyed ($)
Region Age ≤ 30 Age 31 – 50 Age ≥ 51
State bordering Mexico $7.50 $6.80 $5.50
State not bordering Mexico $6.90 $7.25 $6.10

X1: number of special risk insurance

X2: number of mortgage
Max Z = 5x1 + 2x2
Notation – Fundamental Insight
SENSITIVE ANALYSIS: Involves a series of What-if questions
Types of Sensitive Analysis:
Changes in the objective function coefficients

Example:
Maximize Profit = 50 x 1+120 x 2 +0 s 1 +0 s 2
Subject to
2 x1 + 4 x 2 ≤ 80
3 x 1+ x 2 ≤60
x1 , x2 ≥ 0
Solution: Profit = 2,400
BV: x 2=20 , s 2=40
NBV: x 1=s1=0
BV x1 x2 s1 s2 RHS
Z 10 0 30 0 2400
x2 0.5 1 0.25 0 20
s2 2.5 0 -0.25 1 40

- Range of NBV
NBV: x 1
¿ ' ¿ '
z 1−c 1=z 1−c 1 +c 1−c 1
'
¿ 10+c 1−c1
'
¿ 10+50−c 1 ≥ 0
'
→ c 1 ≤ 60
- Range of BV
BV: x 2
¿ ' ¿ '
z 2−c 2=z 2−c2 +c 2−c2
'
¿ 0−(c2−c 2)
¿ 0−Δ c 2
[10 0−Δ c 2 30 0]
For x 2 to stay a BV, z ¿2−c '2 must = 0
BV x1 x2 s1 s2 RHS
Z 10 −Δ c 2 30 0 2400
x2 0.5 1 0.25 0 20
s2 2.5 0 -0.25 1 40

Gaussian elimination:
Row 1 × Δ c 2
[0.5 Δ c 2 Δ c 2 0.25 Δ c 2 0 ]
+ Row 0
[10 0−Δ c 2 30 0]

= x1 x2 s1 s2
[10+0.5 Δ c 2 0 30+0.25 Δ c 2 0]

The optimal does not change if

{ 10+0.5 Δ c2 ≥ 0
30+0.25 Δ c2 ≥ 0

⇔
{ Δ c 2 ≥−20
Δ c 2 ≥−120
⇔ Δ c 2 ≥−20
'
⇔ c 2−c 2 ≥−20
'
⇔ c 2 ≥ 100
Changes in Right-hand side values
Changes in the constraint coefficients

Addition of a new constraint

Addition of a new decision variable

Duality