Nonlinear Programming

Learning Objectives
10.1 Nonlinear Profit Analysis
10.2 Constrained Optimization
10.3 Solution of Nonlinear Programming Problems with
Excel
10.4 A Nonlinear Programming Model with Multiple
Constraints
10.5 Nonlinear Model Examples
Overview
• The methods seen so far have assumed that the
objective function and constraints are linear
• However, there are many nonlinear relationships in the
real world that would require the objective function and/or
constraint equations to be nonlinear
• Computational procedures for nonlinear programming
(NLP) may only provide a local optimum solution rather
than a global optimum
Overview
• 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.
• Determining an optimal solution is often difficult, if not
impossible.
• Solution techniques generally involve searching a
solution surface for high or low points requiring the use
of advanced mathematics.
Learning Objective 10.1
• Nonlinear Profit Analysis
Optimal Value of a Single Nonlinear
Function (1 of 2)
Profit function, Z, with volume
independent of price:
Z  vp  cf  vcv
where v = sales volume
p = price
cf = unit fixed cost
cv = unit variable cost

Add volume/price relationship:

v  1,500  24.6 p
Figure 10.1 Linear relationship
of volume to price
Optimal Value of a Single Nonlinear
Function (2 of 2)
With fixed cost (cf = $10,000) and variable cost (cv = $8):
2
Profit, Z  1,696.8 p  24.6p  22,000

Figure 10.2 The nonlinear profit function

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 10.3 Maximum profit for the profit function

Optimal Value of a Single Nonlinear
Function: Solution Using Calculus
Z  1,696.8p  246 p 2  2,000
dZ
 1,696.8  492 p
dp

=0

1,696.8
p
49.2

= $34.49

v = 1,500 − 24.6p
v = 651.6 pairs of jeans Figure 10.4 Maximum profit,
Z = $7,259.45 optimal price and optimal volume
Learning Objective 10.2
• Constrained Optimization
Constrained Optimization in Nonlinear
Problems: Definition
• A nonlinear problem containing one or more constraints
becomes a constrained optimization model or a
nonlinear programming (NLP) 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 for all NLP models.
Constrained Optimization in Nonlinear
Problems: Graphical Interpretation (1 of 3)
Effect of adding constraints to nonlinear problem:

Figure 10.5 Nonlinear profit curve for the profit analysis model
Constrained Optimization in Nonlinear
Problems: Graphical Interpretation (2 of 3)
Figure 10.6 A constrained optimization model
Constrained Optimization in Nonlinear
Problems: Graphical Interpretation (3 of 3)
Figure 10.7 A constrained optimization model with a solution point not
on the constraint boundary
Constrained Optimization in Nonlinear
Problems: Characteristics
• Unlike linear programming, the 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.
Learning Objective 10.3
• Solution of Nonlinear Programming Problems with Excel
Western Clothing Problem: Solution Using
Excel (1 of 3)
Exhibit 10.1
Western Clothing Problem: Solution Using
Excel (2 of 3)
Exhibit 10.2
Western Clothing Problem: Solution Using
Excel (3 of 3)
Exhibit 10.3
Beaver Creek Pottery Company Problem:
Solution Using Excel (1 of 6)
Maximize Z  $(4  0.1x1 )x1  (5  0.2 x2 ) x2

subject to:
x1  2 x2  40

Where:
x1 = number of bowls produced
x2 = number of mugs produced
4 − 0.1x1 = profit ($) per bowl
5 − 0.2x2 = profit ($) per mug
Beaver Creek Pottery Company Problem:
Solution Using Excel (2 of 6)
Exhibit 10.4
Beaver Creek Pottery Company Problem:
Solution Using Excel (3 of 6)
Exhibit 10.5
Beaver Creek Pottery Company Problem:
Solution Using Excel (4 of 6)
Exhibit 10.6
Beaver Creek Pottery Company Problem:
Solution Using Excel (5 of 6)
Exhibit 10.7
Beaver Creek Pottery Company Problem:
Solution Using Excel (6 of 6)
Exhibit 10.8
Learning Objective 10.4
• A Nonlinear Programming Model with Multiple Constraints
Western Clothing Company Problem:
Solution Using Excel (1 of 4)
Maximize Z  ( p1  12)x1  ( p2  9)x2

subject to:
2 x1  2.7 x2  6,000
3.6 x1  2.9 x2  8,500
7.2 x1  8.5 x2  15,000

where:
x1 = 1,500 − 24.6p1

x2 = 2,700 − 63.8p2

p1 = price of designer jeans

p2 = price of straight jeans

Western Clothing Company Problem:
Solution Using Excel (2 of 4)
Exhibit 10.9
Western Clothing Company Problem:
Solution Using Excel (3 of 4)
Exhibit 10.10
Western Clothing Company Problem
Solution Using Excel (4 of 4)
Exhibit 10.11
Learning Objective 10.5
• Nonlinear Model Examples
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.

 xi  x    y i  y 
2 2
d
Where:
(x,y) = coordinates of proposed facility
(xi,yi) = coordinates of customer or location facility i
Minimize total miles d   d i t i
Where:
di = distance to town i

ti =annual trips to town i

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
Dunning 32 15 60
Eden 10 8 90
Facility Location Example Problem:
Solution Using Excel
Exhibit 10.12
Facility Location Example Problem:
Solution Map
Figure 10.8 Rescue squad facility location
Investment Portfolio Selection Example Problem:
Definition and Model Formulation (1 of 3)

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.
Investment Portfolio Selection Example Problem:
Definition and Model Formulation (2 of 3)

Minimize S  x1 s1  x2 s2  ...  xn sn   xi x j rij si s j

2 2 2 2 2 2

i j

where:
S  variance of annual return of the portfolio
xi , x j  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 , s j  the std. dev. of returns for investments i and j
Investment Portfolio Selection Example Problem:
Definition and Model Formulation (3 of 3)

subject to:
ri xi  r2 x2  ...  rn x n  rm
x1  x2  ...  xn  1.0

where:
ri = expected annual return on investment i
rm = the minimum desired annual return from the portfolio
Investment Portfolio Selection Example:
Problem Solution Using Excel (1 of 6)
Stock (xi) Annual Return (ri) Variance (si)
1. Altacam .08 .009
2. Bestco .09 .015
3. Com.com .16 .040
4. Delphi .12 .023

Stock Combination (i, j) Covariances (rij)

A,B .4
A,C .3
A,D .6
B,C .2
B,D .7
C,D .4
Investment Portfolio Selection Example:
Problem Solution Using Excel (2 of 6)
Four stocks, desired annual return of at least
0.11.
Minimize
Z  S  x12 .009   x22 .015   x32 .040   x 42 .023 
1 1 1 1
 x1x2 (.4)(.009) (0.015)  x1x3 (.3)(.009) (.040) 
2 2 2 2

1 1 1 1
x1x 4 (.6)(.009) (.023)  x 2 x3 (.2)(.015) (.040) 
2 2 2 2

1 1 1 1
x2 x 4 (.7)(.015) (.023)  x3 x 4 (.4)(.040) (.023) 
2 2 2 2

1 1 1 1
x2 x1(.4)(.015) (.009)  x3 x1(.3)(.040)  (.009) 
2 2 2 2

1 1 1 1
x4 x1(.6)(.023) (.009)  x3 x 2 (.2)(.040) (.015) 
2 2 2 2

1 1 1 1
x4 x2 (.7)(.023) (.015)  x 4 x3 (.4)(.023) (.040)
2 2 2 2
Investment Portfolio Selection Example:
Problem Solution Using Excel (3 of 6)
subject to:

.08 x1  .09 x2  .16 x3  .12 x4  0.11

x1  x2  x3  x4  1.00
xi  0
Investment Portfolio Selection Example:
Problem Solution Using Excel (4 of 6)
Exhibit 10.13
Investment Portfolio Selection Example:
Problem Solution Using Excel (5 of 6)
Exhibit 10.14
Investment Portfolio Selection Example:
Problem Solution Using Excel (6 of 6)
Exhibit 10.15
Hickory Cabinet and Furniture Company
Example Problem and Solution (1 of 2)
The Hickory Cabinet and Furniture Company makes chairs and
tables. The company has developed the following nonlinear
programming model to determine the optimal number of chairs
and tables to produce each day to maximize profit. Determine
the solution using Excel.
Model:
Maximize Z  $280x1  6 x12  160 x2  3 x22
subject to:
20 x1  10 x2  800 board ft.
Where:
x1 = number of chairs

x2 = number of tables
Hickory Cabinet and Furniture Company
Example Problem and Solution (2 of 2)