Introduction to Management Science

8th Edition
by
Bernard W. Taylor III

Chapter 11
Nonlinear Programming

Chapter 11 - Nonlinear Programming 1

Chapter Topics

Nonlinear Profit Analysis

Constrained Optimization
Solution of Nonlinear Programming Problems with Excel
A Nonlinear Programming Model with Multiple Constraints
Nonlinear Model Examples

Chapter 11 - Nonlinear Programming 2

Overview

Many business problems can be modeled only with nonlinear

functions.
Problems that fit the general linear programming format but
contain nonlinear functions are termed nonlinear programming
(NLP) problems.
Solution methods are more complex than linear programming
methods.
Often difficult, if not impossible, to determine optimal solution.
Solution techniques generally involve searching a solution surface
for high or low points requiring the use of advanced mathematics.
Computer techniques (Excel) are used in this chapter.

Chapter 11 - Nonlinear Programming 3

Optimal Value of a Single Nonlinear Function
Basic Model
Profit function, Z, with volume independent of price:
Z = vp - cf - vcv
where v = sales volume
p = price
cf = fixed cost
cv = variable cost
Add volume/price relationship:
v = 1,500 - 24.6p

Figure 11.1
Linear Relationship of Volume to Price

Chapter 11 - Nonlinear Programming 4

Optimal Value of a Single Nonlinear Function
Expanding the Basic Model to a Nonlinear Model
With fixed cost (cf = $10,000) and variable cost (cv = $8):
Z = 1,696.8p - 24.6p2 - 22,000

Figure 11.2
The Nonlinear
Profit Function

Chapter 11 - Nonlinear Programming 5

Optimal Value of a Single Nonlinear Function
Maximum Point on a Curve
The slope of a curve at any point is equal to the derivative of
the curve’s function.
The slope of a curve at its highest point equals zero.

Figure 11.3
Maximum profit
for the
profit function

Chapter 11 - Nonlinear Programming 6

Optimal Value of a Single Nonlinear Function
Solution Using Calculus
nonlinearity!
Z = 1,696.8p - 24.6p2 - 22,000
dZ/dp = 1,696.8 - 49.2p
p = $34.49
v = 1,500 - 24.6p
v = 651.6 pairs of jeans
Z = $7,259.45

Figure 11.4
Maximum Profit, Optimal Price, and Optimal Volume

Chapter 11 - Nonlinear Programming 7

Constrained Optimization in Nonlinear Problems
Definition
If a nonlinear problem contains one or more constraints it
becomes a constrained optimization model or a nonlinear
programming model.
A nonlinear programming model has the same general form
as the linear programming model except that the objective
function and/or the constraint(s) are nonlinear.
Solution procedures are much more complex and
no guaranteed procedure exists.

Chapter 11 - Nonlinear Programming 8

Constrained Optimization in Nonlinear Problems
Graphical Interpretation (1 of 3)
Effect of adding constraints to nonlinear problem:

Figure 11.5
Nonlinear Profit Curve for the Profit Analysis Model

Chapter 11 - Nonlinear Programming 9

Constrained Optimization in Nonlinear Problems
Graphical Interpretation (2 of 3)

Figure 11.6
A Constrained Optimization Model

Chapter 11 - Nonlinear Programming 10

Constrained Optimization in Nonlinear Problems
Graphical Interpretation (3 of 3)

Figure 11.7
A Constrained Optimization Model with a Solution
Point Not on the Constraint Boundary

Chapter 11 - Nonlinear Programming 11

Constrained Optimization in Nonlinear Problems
Characteristics
Unlike linear programming, solution is often not on the
boundary of the feasible solution space.
Cannot simply look at points on the solution space boundary
but must consider other points on the surface of the objective
function.
This greatly complicates solution approaches.
Solution techniques can be very complex.

Chapter 11 - Nonlinear Programming 12

Problems
1. The Hickory Cabinet and Furniture
Company makes chairs. The fixed cost per
month of making chairs is $7,500, and the
variable cost per chair is $40. Price is
related to demand, according to the
following linear equation:
v = 400 - 1.2p
2. The Rainwater Brewery produces beer,
which it sells to distributors in barrels.
The brewery incurs a monthly fixed
cost of $12,000, and the variable cost
per barrel is $17. The brewery has
developed the following profit function
and demand constraint:

maximize Z = vp - +12,000 - 17v

Develop the nonlinear profit function for this
company and determine the price that will
maximize profit, the optimal volume, and Subject to:
the maximum profit per month.
Graphically illustrate the profit curve v = 1,800 - 15p
developed in Problem 1. Indicate the
optimal price and the Solve this nonlinear programming
maximum profit per month.
model for the optimal price (p).

Chapter 11 - Nonlinear Programming 13

Western Clothing Problem
Solution Using Excel (1 of 3)

Exhibit 11.1

Chapter 11 - Nonlinear Programming 14

Western Clothing Problem
Solution Using Excel (2 of 3)

Exhibit 11.2

Chapter 11 - Nonlinear Programming 15

Western Clothing Problem
Solution Using Excel (3 of 3)

Exhibit 11.3

Chapter 11 - Nonlinear Programming 16

Beaver Creek Pottery Company Problem
Solution Using Excel (1 of 6)
Maximize Z = $(4 - 0.1x1)x1 + (5 - 0.2x2)x2

subject to:
x1 + x2 = 40

Where:
x1 = number of bowls produced
x2 = number of mugs produced

Chapter 11 - Nonlinear Programming 17

Beaver Creek Pottery Company Problem
Solution Using Excel (2 of 6)

Exhibit 11.4

Chapter 11 - Nonlinear Programming 18

Beaver Creek Pottery Company Problem
Solution Using Excel (3 of 6)

Exhibit 11.5

Chapter 11 - Nonlinear Programming 19

Beaver Creek Pottery Company Problem
Solution Using Excel (4 of 6)

Exhibit 11.6

Chapter 11 - Nonlinear Programming 20

Beaver Creek Pottery Company Problem
Solution Using Excel (5 of 6)

Exhibit 11.7

Chapter 11 - Nonlinear Programming 21

Beaver Creek Pottery Company Problem
Solution Using Excel (6 of 6)

Exhibit 11.8

Chapter 11 - Nonlinear Programming 22

Western Clothing Company Problem
Solution Using Excel (1 of 4)
Maximize Z = (p1 - 12)x1 + (p2 - 9)x2
subject to:
2x1 + 2.7x2  6,00
3.6x1 + 2.9x2  8,500
7.2x1 + 8.5x2  15,000
where:
x1 = 1,500 - 24.6p1
x2 = 2,700 - 63.8p
p1 = price of designer jeans
p2 = price of straight jeans

Chapter 11 - Nonlinear Programming 23

Western Clothing Company Problem
Solution Using Excel (2 of 4)

Exhibit 11.9

Chapter 11 - Nonlinear Programming 24

Western Clothing Company Problem
Solution Using Excel (3 of 4)

Exhibit 11.10

Chapter 11 - Nonlinear Programming 25

Western Clothing Company Problem
Solution Using Excel (4 of 4)

Exhibit 11.11

Chapter 11 - Nonlinear Programming 26

Facility Location Example Problem
Problem Definition and Data (1 of 2)
Centrally locate a facility that serves several customers or
other facilities in order to minimize distance or miles traveled
(d) between facility and customers.
di = sqrt((xi - x)2 + (yi - y)2) (= straight-line distance)
Where:
(x,y) = coordinates of proposed facility
(xi,yi) = coordinates of customer or location facility i
Minimize total miles d =  diti
Where:
di = distance to town i
ti =annual trips to town i

Chapter 11 - Nonlinear Programming 27

Facility Location Example Problem
Problem Definition and Data (2 of 2)

Coordinates
Town x y Annual Trips
Abbeville 20 20 75
Benton 10 35 105
Clayton 25 9 135
Dunnig 32 15 60
Eden 10 8 90

Chapter 11 - Nonlinear Programming 28

Facility Location Example Problem
Solution Using Excel

Exhibit 11.12

Chapter 11 - Nonlinear Programming 29

Facility Location Example Problem
Solution Map

Figure 11.8
Rescue Squad Facility Location

Chapter 11 - Nonlinear Programming 30

Investment Portfolio Selection Example Problem
Definition and Model Formulation (1 of 2)
Objective of the portfolio selection model is to minimize
some measure of portfolio risk (variance in the return on
investment) while achieving some specified minimum return
on the total portfolio investment.
Since variance is the sum of squares of differences, it is
mathematically identical to the “straight-line distance”!
Thus, it is possible to visualize variances as such
distances, and minimizing the overall variance is then
mathematically identical to minimizing such distances.

Chapter 11 - Nonlinear Programming 31

Investment Portfolio Selection Example Problem
Definition and Model Formulation (2 of 2)
Minimize S = x12s12 + x22s22 + … +xn2sn2 + xixjrijsisj
“straight-line distance”
where:
S = variance of annual return of the portfolio
xi,xj = the proportion of money invested in investments i or j
si2 = the variance for investment i
rij = the correlation between returns on investments i and j
si,sj = the std. dev. of returns for investments i and j
subject to:
r1x1 + r2x2 + … + rnxn  rm
x1 + x2 + …xn = 1.0
where:
ri = expected annual return on investment i
rm =
Chapter 11 -the minimum
Nonlinear desired annual return from the portfolio
Programming 32
Investment Portfolio Selection Example Problem
Solution Using Excel (1 of 5)
Four stocks, desired annual return of at least 0.11.
Minimize
Z = S = xA2(.009) + xB2(.015) + xC2(.040) + XD2(.023)
+ xAxB (.4)(.009)1/2(0.015)1/2 + xAxC(.3)(.009)1/2(.040)1/2 +
xAxD(.6)(.009)1/2(.023)1/2 + xBxC(.2)(.015)1/2(.040)1/2 +
xBxD(.7)(.015)1/2(.023)1/2 + xCxD(.4)(.040)1/2(.023)1/2 + xBxA(.4)
(.015)1/2(.009)1/2 + xCxA(.3)(.040)1/2 + (.009)1/2 + xDxA(.6)
(.023)1/2(.009)1/2 + xCxB(.2)(.040)1/2(.015)1/2 + xDxB(.7)
(.023)1/2(.015)1/2 + xDxC (.4)(.023)1/2(.040)1/2
subject to:
.08x1 + .09x2 + .16x3 + .12x4  0.11
x1 + x2 + x3 + x4 = 1.00
xi  Programming
Chapter 11 - Nonlinear 0 33
Investment Portfolio Selection Example Problem
Solution Using Excel (2 of 5)

Stock (xi) Annual Return (ri) Variance (si)

Altacam .08 .009
Bestco .09 .015
Com.com .16 .040
Delphi .12 .023

Stock combination (i,j) Correlation (rij)

A,B .4
A,C .3
A,D .6
B,C .2
B,D .7
C,D .4

Chapter 11 - Nonlinear Programming 34

Investment Portfolio Selection Example Problem
Solution Using Excel (3 of 5)

Exhibit 11.13
Chapter 11 - Nonlinear Programming 35
Investment Portfolio Selection Example Problem
Solution Using Excel (4 of 5)

Exhibit 11.14

Chapter 11 - Nonlinear Programming 36

Investment Portfolio Selection Example Problem
Solution Using Excel (5 of 5)

Exhibit 11.15
Chapter 11 - Nonlinear Programming 37
Hickory Cabinet and Furniture Company
Example Problem and Solution (1 of 2)
Model:
Maximize Z = $280x1 - 6x12 + 160x2 - 3x22
subject to:
20x1 + 10x2 = 800 board ft.
Where:
x1 = number of chairs
x2 = number of tables

Chapter 11 - Nonlinear Programming 38

Hickory Cabinet and Furniture Company
Example Problem and Solution (2 of 2)

Chapter 11 - Nonlinear Programming 39

Chapter 11 - Nonlinear Programming 40