Linear Relationship

Slide 7.
Chapter 7:
Business modelling:
Linear
relationships
Wall, Coday and Mitchell, Quantitative Methods for Business and Management PowerPoints on the Web, 1st edition © Pearson Education Limited 2015
Slide 7.2
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4
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Slide 7.12
A linear programme must contain:
An optimal objective
(maximized or minimized).
A set of constraints.
A variety of available solutions.
A linear or direct relationship
among the variables.
Slide 7.13
It is assumed therefore that:
there is a single goal

which can be stated verbally &
represented mathematically
the constraints are linear
all parameters are static

and are known with a degree of
certainty over the problem’s time
frame
Slide 7.14
Problem is solved in 3 stages:

1. Formulation
Getting the problem in the correct form;
2. Solution
finding an optimal solution to the problem;
3. Sensitivity analysis
seeing what happens when the problem
is changed slightly.
Slide 7.15
Formulation
Objective Function
Usually maximizing or minimizing some function
Structural constraints
Maximizing or minimizing some function subject
to a number of constraints.
e.g. maximize output subject to a given amount
of land, labour or capital
Non-negative constraints
It is usual to limit the analysis to zero or positive
outputs e.g. y  0, x  0
Slide 7.16
Example
A small company produces two products, x and y.

Product x requires 1 hour of labour and 6 tons of raw
materials, whereas each unit of product y requires
2 hours of labour and 5 tons of raw material.
The number of hours available each week is 40 and the
available raw materials each week is 150 tons.
If the contribution to profit is £2 per unit of product x
and £3 per unit of y, determine the weekly production
mix that will maximize profits.
Slide 7.17
This linear programming problem can be

formulated mathematically as:
Slide 7.18
Raw Material
Labour constraint
constraint
Expressed algebraically
Product x requires 61 tons
hour
Labour x + 2y  40
Product y requires 52 tons
hours
Raw
Subject to 150
40 material 6x + 5y  150
hours
tons
profit = 2x + 3y
x y constraint
Labour 1 2 40
Raw material 6 5 150
If the contribution to profit is £2 per unit of product x

and £3 per unit of y, then
profitprofit
= 2xcan
+ 3yalso be expressed
algebraically as
Slide 7.19
Expressed algebraically
Labour x + 2y  40
Raw material 6x + 5y  150
profit = 2x + 3y
Slide 7.20
Formulation
Maximize profit:
z = 2x + 3y
The linear objective function
Subject to:
x + 2y  40 labour constraint
6x + 5y  150 raw material constraint
The linear structural constraints
and
x  0, y  0
The non-negativity constraint
Slide 7.21
Graphing The Objective Function

Y Let profit (z) = 30 30z = 2x + 3y
If we produce only y 30 = 2x
3y
yx = 10
15
All values are in £s
10
constant profit or Iso-profit lines
z = 30
0 X
15
Slide 7.22
The Objective Function

Y Let profit (z) = 60 60z = 2x + 3y
20 If we produce only x 60 = 2x
3y
yx = 20
30
10
z = 60
z = 30
0 X
15 30
Slide 7.23
The Objective Function

Y The slope of the objective
20 function (z) is given by:
z = profitability of x = 15 = 3
profitability of y 10 2
10
z = 60
z = 30
0 X
15 30
Slide 7.24
The definition of the feasible area

Raw material constraint 6x + 5y = 150
Y
If we produce only xy 6x
5y==150
150
30 xy== 30
25
raw material constraint
20
10
0
10 20 25 30 40 X
Slide 7.25

Labour constraint x + 2y = 40
Y
If we produce only xy 2yx = 40
30 y = 20
20
10
labour constraint
0
10 20 25 30 40 X
Slide 7.26
Try to find z subject to it being feasible
Y
30 Cannot produce here (using more
labour than available)
20A Cannot produce here (outside labour

AND raw materials available
B Cannot produce here (using more

10
raw materials than available)
0 C
10 20 25 30 40 X
Slide 7.27
Graphical solution of corner points
Y
30
20 A
B
10
labour constraint
C
0
10 20 25 30 40 X
Slide 7.28
Algebraic solution of corner points

Y
30
@ A x = 0 , y = 20
z = 2x + 3y Substitute these values
z = 2(0) + 3(20) into the objective function
20 A
B z = 60
10
labour constraint
C
@B ????
0 X
10 20 25 30 40
@C x = 25 , y = 0
The objective function Substitute these values
z = 2x + 3y into the objective function
Maximize: z = 2(25) + 3(0)
z = 2x + 3y z = 50
Slide 7.29
@ B Thus
Useraw
the simultaneous
wematerial
need a value
constraint
equations
for and the
xlabour
and yconstraint
which solveareboth
equal
Y
30 6 x + 5 y = 150
6x
raw+ material
5y = 150constraint x + 2 y = 40
20 A
B
10
xlabour
+ 2y =constraint
40
C
0
10 20 25 30 40 X
Slide 7.30
@ B Use simultaneous equations
We need to eliminate ... 6x + 5y = 150

either x or y ... x + 2y = 40
to eliminate x
multiply  by 6 ... 6x + 12y = 240
Subtract  from  ... 6x + 12y = 240

... 6x + 5y = 150
7y = 90
y = 90
7
y = 12·86
to 2 decimal places
Slide 7.31
@ B Use simultaneous equations y = 12·86

We can now substitute this value into either equation and solve for x
x + 2y = 40
x + 2(12.86) = 40
x + 25·72 = 40
x = 40 - 25·72
x = 14·28
Substitute these values into the objective function
z = 2x + 3y
z = 2(14·28) + 3(12·86)
z = 28·56 + 38·58
z = 67·14 y = 12·86
Slide 7.32

@ A z = 60 (x = 0, y = 20)
@ B z = 67·14 (x = 14·28, y = 12·86)
@ C z = 50 (x = 25, y = 0)
Y
30
So profit maximize at B where: profit = £67·14

20 A
with an output = 14·28 x
B
10
and 12·86 y
C
0
10 20 25 30 40 X
Slide 7.33
Example
A firm can produce 2 goods A & B, yielding unit profit

margins of £20 & £25 respectively. The firm has 180 units
of labour, 90 units of capital 45 units of land. The
production requirements are:-
Good A: 2 units of labour, 3 units of capital, 1 unit of land.

Good B: 3 units of labour, 1 unit of capital, 1 unit of land.
Find the feasible output combination of goods A & B

which will maximize profits.
What is the value of total profit of this combination?
Slide 7.34
Express the given data algebraically
profit = 20A + 25B
A B constraint
Labour 2 3 180
Capital 3 1 90
Land 1 1 45
Labour constraint: 2A + 3B  180

Capital constraint: 3A + 1B  90
Land constraint: 1A + 1B  45
Slide 7.35
Formulation
Maximize profit:
z = 20A + 25B
Subject to:
2A + 3B  180 Labour constraint
3A + 1B  90 Capital constraint
1A + 1B  45 Land constraint
and
A0
B0
Slide 7.36

A Labour constraint 2A + 3B = 180
90
If we produce only A
B 2A
3B==180
180
labour constraint
AB== 90
60
0 B
60
Slide 7.37

A Capital constraint 3A + 1B = 90
90
B 3AB==90
90
labour constraint A = 30
30
capital constraint
0 B
60 90
Slide 7.38

A Land constraint A + B = 45
90
B AB==45
45
labour constraint
45 land constraint
30
capital constraint
0 B
45 60 90
Slide 7.39
A The definition of the feasible area

90
labour constraint
45 land constraint Feasible area

30 M N
capital constraint
P
B
45 60 90
Slide 7.40
@ M A = 30, B = 0
A z = 20A + 25B Substitute these values
z = 20(30) + 25(0) into the objective function
90
z = 600
labour constraint
@P A = 0 , B = 45
Substitute these values
45 land constraintz = 20A + 25B into the objective function
30 M z = 20(0) + 25(45)
N
z = 1125
capital constraint
P
B
0 45 60 90
Slide 7.41
@ N Thus
Useland
the simultaneous
we constraint
need a value
equations
andfor
the capital constraint
areand
A equal
B which solve both
A ... A + B = 45
... 3A + B = 90
90
labour constraint
45 A +B
land = 45
constraint
30 M N
3A + Bconstraint
capital = 90
P
B
0 45 60 90
Slide 7.42
@ N Use simultaneous equations

We need to eliminate
either A or B
to eliminate B ... A + B = 45
... 3A + B = 90
Subtract  from 
-2A = -45
-45
A = -2
A = 22·5
Slide 7.43
@ N Use simultaneous equations A = 22·5

We can now substitute this value into either equation and solve for B
A + B = 45
22.5 + B = 45
B = 45 - 22·5
B = 22·5

A = 22·5
z = 20A + 25B
z = 20(22·5) + 25(22·5)
z = 450 + 562·5
z = 1,012·5
Slide 7.44

@ M z = £600 (A = 30, B = 0)
@ N z = £1012·5 (A = 22·5 B = 22·5)
@ P z = £1,125 (A = 0, B = 45)
So profit maximize at P where: profit = £1,125
with an output = 0 A
and 45 B
Slide 7.45
Example
A manufacturer of fitted kitchens produces 2 types of

units, a base unit and a cabinet.
The base requires 90 minutes to produce and 30 minutes to
assemble; whilst the cabinet requires 30 minutes to
produce and 60 minutes to assemble.
Each day 21 hours are available to the production
department and 18 to the assembly department.
It has been agreed that not more than 15 cabinets are
produced each day. If the base units make a contribution
to profits of £2 per unit and cabinets contribute £5 per unit,
what product mix will maximize profits?
What is this profit?
Slide 7.46
Express the given data algebraically

Let b = base . . . . £2 to profit
c = cabinet . . profit = 2b + 5c
£5 to profit
21 hoursvariables
18
Express = 1080
1260 profit
minutes
in the =same
2b +units
5c - minutes
b c constraint
Production 90 30 1260
Assembly 30 60 1080
Production constraint: 90b + 30c  1260

Assembly constraint: 30b + 60c  1080
Slide 7.47
Formulation
Maximize profit:
z = 2b + 5c
Subject to:
90b + 30c  1260 Production constraint
30b + 60c  1080 Assembly constraint
and
b  15
c0
Slide 7.48
Assembly
Production
maximumconstraint:
constraint:
cabinets = 15 1260
90b +c60c
30b
allowed: 30c 1080
b b = 36
14 c = 18
42
36
14 M
N
P
feasible area
Q
0 15 18 42 c
Slide 7.49
Solve z at each corner point
@M b = 14 , c = 0
Substitute
z = 2bthese
+ 5cvalues
into the objective function
b z = 2(14) + 5(0)
z = 28
36
@Q b = 0 , c = 15
Substitute these values
into the
z =objective
2b + 5cfunction
14 M z = 2 (0) + 5(15)
N z = 75
P
feasible area
Q
0 15Wall,18 c PowerPoints on the Web, 1
42 and Management
Coday and Mitchell, Quantitative Methods for Business st edition © Pearson Education Limited 2015
Slide 7.50
@ N the
Weproduction
need to eliminate either b or90b
c + 30c = 1260
constraint
theeliminate
assemblyb constraint 30b + 60c = 1080
... 90b + 30c = 1260
are equal
multiply .. by 3 =  ... 30b + 60c = 1080
b ... 90b + 180c = 3240

36 Subtract  from  ... 90b + 30c = 1260
30b + 60c = 1080
150c = 1980
c = 13·2
c = 13 to nearest whole number
14 M
N
P 90b + 30c = 1260

feasible area
Q
42 and Management
Slide 7.51
@N c = 13·2
We can now substitute this value into either equation and solve for b
90b + 30c = 1260
90b + 30(13.2) = 1260
b 90b + 396 = 1260
36 90b = 1260 - 396
90b = 864
b = 9·6 = 10 c = 13·2
z = 2b + 5c
14 M
N
z = 2(10) + 5(13)
P
z = 20 + 65
feasible area
Q z = 85
42 and Management
Slide 7.52
@P the production
We need limit
to eliminate either bc or c
= 15
theeliminate
assemblyc constraint 30b + 60c = 1080
... 30b + 60c = 1080
are equal ... c = 15
multiply  by 60 = 
b ... 60c = 900
c = 15 30b + 60c = 1080
36 Subtract  from  ...
-30b = -180
30b + 60c = 1080
-180
b=
-30
14 M b=6
N
P
feasible area
Q
42 and Management
Slide 7.53
@P z = 87, b = 6, c = 15
z = 2b + 5c
z = 2(6) + 5(15)
z = 12 + 75
z = 87
@M z = £28 (b = 14, c = 0)
@N z = £85 (b = 10, c = 13)
@P z = £87 (b = 6, c = 15)
@Q z = £75 (b = 0, c = 15)
So profit maximize at P where: profit = £87

with an output of 6 base and 15 cabinets
Slide 7.54
@M z = £28 (b = 14, c = 0)
@N z = £85 (b = 10, c = 13)
@P z = £87 (b = 6, c = 15)
@Q z = £75 (b = 0, c = 15)
So profit maximize at P where: profit = £87
with an output of 6 base and 15 cabinets
Slide 7.55
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Slide 7.

A linear programme must contain:

It is assumed therefore that:

there is a single goal

the constraints are linear

all parameters are static

Problem is solved in 3 stages:

A small company produces two products, x and y.

This linear programming problem can be

Raw material 6 5 150

If the contribution to profit is £2 per unit of product x

Graphing The Objective Function

constant profit or Iso-profit lines

The Objective Function

The Objective Function

The definition of the feasible area

The definition of the feasible area

Try to find z subject to it being feasible

20A Cannot produce here (outside labour

B Cannot produce here (using more

Graphical solution of corner points

Algebraic solution of corner points

@ B Use simultaneous equations

We need to eliminate ... 6x + 5y = 150

Subtract  from  ... 6x + 12y = 240

@ B Use simultaneous equations y = 12·86

Algebraic solution of corner points

So profit maximize at B where: profit = £67·14

A firm can produce 2 goods A & B, yielding unit profit

Good A: 2 units of labour, 3 units of capital, 1 unit of land.

Find the feasible output combination of goods A & B

Express the given data algebraically

profit = 20A + 25B

Labour constraint: 2A + 3B  180

The definition of the feasible area

The definition of the feasible area

The definition of the feasible area

A The definition of the feasible area

45 land constraint Feasible area

Algebraic solution of corner points

@ N Use simultaneous equations

@ N Use simultaneous equations A = 22·5

Substitute these values into the objective function

Algebraic solution of corner points

So profit maximize at P where: profit = £1,125

A manufacturer of fitted kitchens produces 2 types of

Express the given data algebraically

Production constraint: 90b + 30c  1260

Solve z at each corner point

b ... 90b + 180c = 3240

P 90b + 30c = 1260

So profit maximize at P where: profit = £87

So profit maximize at P where: profit = £87

with an output of 6 base and 15 cabinets

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