1.

A Product Mix Example

Quick-Screen is a clothing manufacturing company that specializes in producing

commemorative shirts immediately following major sporting events such as the
World Series, Super Bowl, and Final Four. The company has been contracted to
produce a standard set of shirts for the winning team, either State University or
Tech, following a college football game on New Year’s Day. The item produced
include two sweatshirts, one with silk-screen painting on the front and one with
print on both sides, and two T-shirts of the same configuration. The company has
to complete all production within 72 hours after the game, at which time a trailer
truck will pick up the shirts. The company will work around the clock. The truck has
enough capacity to accommodate 1,200 standard size boxes. A standard size box
holds 12 T-shirts, and a box of 12 sweatshirts is three times of standard box. The
company has budgeted $25,000 for the production run. It has 500 dozen blank
sweatshirts and T-shirts each in stock, ready for the production. The scenario is
illustrated in Figure 4.1 bellow.
The scenario requirements, unit costs, and profit per dozen for each type of shirt
are shown in the following table:

Processing Cost Profit

Time (hr) per Dozen per Dozen
Sweatshirts – Front 0.10 $36 $90
Sweatshirts – Front/Back 0.25 $48 $125
T-shirts - Front 0.08 $25 $45
T-shirt – Front/Back 0.21 $35 $65

The company wants to know how many dozen (boxes) of each type of shirt to
produce in order to maximize profit.

Step1: Define the decision variables

How many (dozens of) T-shirts and sweatshirts of each type to produce
Step 2: Define the objective function
Maximize profit

Step 3: Define the constraints

The resources available, including processing time, blank shirts, budget, and
shipping capacity.

Decision Variables
This problems contains four decision variables, representing the number of dozens
(boxes) of each type of shirts to produce.

X1 = sweatshirts, front printing

X2 = sweatshirts, front and back printing
X3 = T-shirts, front printing
X4 = T-shirts, front and back printing

The objective function

The company’s objective is to maximize profit. The total profit is the sum of the
individual profits gained from each type of shirt. The objective is expressed as

Maximize Z = $90x1 + 125x2 + 45x1 + 65x4

Model Constraints
The first constraint is for processing time. The total available processing time is
the 72-hour period between the end of the game and the truck pickup:

0.10x1 + 0.25x2 + 0.08x3 + 0.21x4 ≤ 72 hr

The second constraint is for the available shipping capacity, which is 1,200
standard-size boxes. A box of sweatshirts is three times the size of a standard-
size box. Thus, each box of sweatshirts is equivalent in size to three boxes of T-
shirts. This relative size differential is expressed in the following constraint:
 3x1 + 3x2 + x3 + x4 ≤ 1,200 boxes

The third constraint is for the cost budget. The total budget available for
production is $25,000:

$36x1 + 48x2 + 25x3 + 35x4 ≤ 25,000

The last two constraints reflect the available blank sweatshirts and T-shirts the
company has in storage:

x1 + x2 ≤ 500
x3 + x4 ≤ 500

Model Summary

Maximize Z = $90x1 + 125x2 + 45x1 + 65x4

Subject to
0.10x1 + 0.25x2 + 0.08x3 + 0.21x4 ≤ 72 hr
3x1 + 3x2 + x3 + x4 ≤ 1,200 boxes
$36x1 + 48x2 + 25x3 + 35x4 ≤ 25,000
x1 + x2 ≤ 500
x3 + x4 ≤ 500
x1 + x2 + x3 + x4 ≥ 0
2. An Investment Example
Kathleen Allen, an individual investor, has $70,000 to divide among several
investments. The alternative investments are municipal bonds with an 8.5% annual
return, certificate of deposit with a 5% return, treasury bills with a 6.5% return,
and a growth stock fund with a 13% annual return. The investments are all
evaluated after 1 year. However, each investment alternative has a different
perceived risk to the investor; thus, is advisable to diversify. Kathleen wants to
know how much to invest in each alternative in order to maximize the return.
The following guidelines have been established for diversifying the investments
and lessening the risk perceived by the investor:
1. No more than 20% of the total investment should be in municipal bonds.
2. The amount invested in certificates of deposit should not exceed the
amount invested in the other three alternatives.
3. At least 30 % of the investment should be in treasury bills and
certificates of deposit.
4. To be safe, more should be invested in CDs and treasury bills than in
municipal bonds and the growth stock fund, by a ratio of at least 1.2 to 1.

Kathleen wants to invest the entire $70,000.

Decision Variables

Four decision variables represent the monetary amount invested in each

investment alternative:

X1 = amount ($) invested in municipal bond

X2 = amount ($) invested in certificates of deposit
X3 = amount ($) invested in treasury bills
X4 = amount ($) invested in growth stock fund
The Objective Function
The objective of the investor is to maximize the total return from the investment
in the four alternatives. The total return is the sum of the individual returns from
each alternative. Thus, the objective function is expressed as

Maximize Z = $0.085x1 + 0.x2 + 0.65x3 + 0.130x4

Model Constraints
In this problem the constraints are the guidelines established for diversifying the
total investment. Each guideline is transformed into a mathematical constraint
separately.

The first guideline states that no more than 20% of the total investment should be
≤in municipal bonds. The total investment is $70,000; 20% of $70,000 is $14,000.
Thus, this constraint is

x1 ≤ $14,000

The second guideline indicates that the amount invested in certificates of deposit
should not exceed the amount invested in the other three alternatives. Because
the investment in certificates of deposit is x2 and the amount invested in the other
alternatives is x1, x3, x4, the constraint is

x2 ≤ x1 + x3 + x4

This constraint is not in what we referred to as standard form because all

variables would be on the left-hand side of the inequality (≤), and all the numeric
values would be on the right side. We will convert the constraint to

x 2 - x1 - x 3 - x 4 ≤ 0

The third guideline specifies that at least 30% of the investment should be in
treasury bills and certificates of deposit. Because 30% of $70,000 is $21,000 and
the amount invested in certificates of deposit and treasury bills is represented by
x2 + x3 , the constraint is

x2 + x3 ≥ 21,000

The forth guideline states that the ratio of the amount invested in certificates of
deposit and treasury bills to the amount invested in municipal bonds and the growth
stock fund should be at least 1.2 to 1.

[(x2 + x3)/(x1 + x4)] ≥ 1.2

This constraint is not in standard linear programming form because of the

fractional relationship of the decision variables, (x2 + x3)/(x1 + x4). It is converted
as follows:

x2 + x3 ≥ 1.2(x1 + x4)

-1.2x1 + x2 + x3 – 1.2 x4 ≥ 0

Finally the investor wants to invest the entire $70,000 in the four alternatives.
Thus, the sum of all the investments in the four alternatives must equal $70,000.

x1 + x2 + x3 + x4 = 70,000

Model Summary

The complete linear programming model for this problem can be summarized as

Maximize Z = $0.085x1 + 0.x2 + 0.65x3 + 0.130x4

subject to
x1 ≤ $14,000
x 2 - x1 - x 3 - x 4 ≤ 0
x2 + x3 ≥ 21,000

-1.2x1 + x2 + x3 – 1.2 x4 ≥ 0

x1 + x2 + x3 + x4 = 70,000

x1, x2, x3 ,x4 ≥ 0

1. A Marketing Example

The Biggs Department Store chain has hired and advertising firm to determine the
types and amount of advertising it should invest in for its store. The three types
of advertising available are television and radio commercials and newspaper ads.
The retail chain desires to know the number of each type of advertisement it
should purchase in order to maximize exposure. It is estimated that each ad or
commercial will reach the following potential audience and cost the following
amount:

______________________________________________________________

Exposure

(people/ad or commercial) Cost

Television commercial 20,000 $15,000

Radio commercial 12,000 6,000

Newspaper ad 9,000 4,000

The company must consider the following resource constraints:

1. The budget limit for advertising is $100,000.

2. The television station has time available for 4 commercials.
3. The radio station has time available for 10 commercials.
4. The newspaper has space available for 7 ads.
5. The advertising agency has time and staff available for producing no more
than a total of 15 commercials and/or ads.
Decision Variables

This model consists of three decision variables that represent the number of each
type of advertising produced:

x1 = number of television commercials

x2 = number of radio commercials

x3 = number of newspaper ads

The Objective Function

The objective of this problem is different from the objectives in previous

examples, in which only profit was to be maximized (or cost minimized). In this
problem, profit is not to be maximized; instead, audience exposure is to be
maximized. Thus, this objective function demonstrates that although a linear
programming model must either maximize or minimize some objective, objective
itself can be in terms of any type of activity or valuation.

For this problem the objective audience exposure is determined by summing the
audience exposure gained from each type of advertising:

Maximize Z = 20,000x1 + 12,000x2 + 9,000x3

Where

Z = total level of audience exposure

20,000x1 = estimated number of people reached by television commercials

12,000x2 = estimated number of people reached by radio commercials

9,000x3 = estimated number of people reached by newspaper ads

Model Constraints

The first constraint in this model reflects the limited budget of $100,000
allocated for advertisement:

$15,000x1 + 6,000x2 + 4,000x3 ≤ 100,000

Where

$15,000x1 = amount spent for television advertising

6,000x2 = amount spent for radio advertising

4,000x3 = amount spent for newspaper advertising

The next three constraints represent the fact that television and radio
commercials are limited to 4 and 10, respectively, and newspaper ads are limited to
7:

x1 ≤ 4 television commercials

x2 ≤ 10 radio commercials

x3 ≤ 7 newspaper ads

The final constraint specifies that the total number or commercials and ads cannot
exceed 15 because of the limitations of the advertising firm:

x1 + x2 + x3 ≤ 15 commercials and ads

Model Summary

The complete linear programming model for this problem is summarized as

Maximize Z = 20,000x1 + 12,000x2 + 9,000x3

subject to

$15,000x1 + 6,000x2 + 4,000x3 ≤ 100,000

x1 ≤ 4

x2 ≤ 10

x3 ≤ 7

x1 + x2 + x3 ≤ 15

x1 ,x2, x3 ≥ 0