Linear Programming

Examples
Pointers on Naming
• Objective Coefficients, (selling prices), are known & do not change,
but are best guesses.
• Sensitivity analysis allows us to gauge how far we can be from our
guess to have no effect on the optimal solution.
• Here, we look at the Allowable Increase & Allowable Decrease for
each objective coefficient. For the chocolate cake, we can change the
selling price from P200 to a maximum of almost P320, and to a
minimum of near P160 and the monthly sales will remain at its
optimum value of 100 cakes. (Of course, a change in selling price will
change the total sales amount).
• We can therefore say that the optimal solution (Final Value of sales
quantities of the 3 cakes) is valid if the objective coefficient is within
the allowable limits.
 Objective Function: Maximize Sales Amount

• For the Allowable Increase & Allowable Decrease for the cream cake,
we can change the selling price from P800 to a max of near P1,000,
and to a minimum of near P500 and the monthly sales will remain at
its optimum value of 40 cakes. (Of course, a change in selling price will
change the total sales amount).
• How about for the lemon cake? When the optimal Final Value is 0, a
Reduced Cost value appears. The -100 value (negative Reduced Cost),
means that we must increase the selling price of lemon cake by more
than P100 (beyond the Allowable Increase), if we want the optimal
Final Value to be positive. The chocolate and cream Final Values will
change, however, and we must solve the problem again to determine
the values.
• A Shadow Price appears after the final value when the constraint is
binding. This value is valid within the indicated Allowable Increase and
Allowable Decrease limit values.
• For the baking costs this means that if it were possible to increase
the baking budget, marginal sales amount will increase by 1.2 for every
unit increase in baking cost. If baking cost is increased by 5,000
(Allowable Increase) to 35,000, then the total sales amount will increase
by 1.2 x 5,000 or P6,000.
• For the production time, marginal sales amount will increase by 40 for
every unit increase in production time. Increasing production time by
200 (to 600), will increase sales by 40 x 200 or P8000.
• Normally, only one item is changed and effect to objective function can
be computed. If more resources are changed at the same time, the total
% change must be 100% to be valid. Beyond 100%, the effect to the
objective function is not clear and problem need to be re-solved.