ENS 208 - Fall 2011 Homework 4 Solutions

Question 1. Identify the special case of the following LP by the help of graphical solution method. max s.t.

z = x1 + x 2 x1 + x 2 4 x1 x 2 >= 5 x1 , x 2 0

Solution
AB is x1 + x2 = 4. CD is x1 - x2 = 5. From graph we see that there is no feasible solution. (DO NOT FORGET TO USE THE NONNEGATIVITY CONSTRAINTS!!!)

Question 2. Money manager Boris Milkman deals with French currency (the franc) and American currency (the dollar). At 12 midnight, he can buy francs by paying 0.25 dollars per franc and dollars by paying 3 francs per dollar. Let x1 is a number of dollars bought (by paying francs) and x2= number is a number of francs bought (by paying dollars). Assume that both types of transactions take place simultaneously, and the only constraint is that at 12:01 am Boris must have a nonnegative number of francs and dollars. a) Formulate an LP problem that enables Boris to maximize the number of dollars he has after all transactions are completed. b) Graphically solve the problem and give your interpretation to the result.

Solution X1 = nb of dollars bought (for francs) X2 = nb of francs bought (for dollars) Max z = X1 - 0.25X2 st X1 - 0.25X20 (dollar constraint) -3X1+ X20 (franc constraint) X1, X20 In the graph the LP's feasible region is between the lines indicated by segments AB and AC (Try random points and shade the corresponding feasible region.). Isoprofit lines are parallel to AB. We increase z by moving down and to right. As you will see, AB has a larger slope than AC. The feasible region never ends as well as the objective function value never becomes finite. Thus, we will have an unbounded LP.

Question 3. Shoemakers of America forecasts the following demand for each of the next six months: month 1, 5000 pairs; month 2, 6000 pairs; month 3, 5000 pairs; month 4, 9000 pairs; month 5, 6000 pairs; month 6, 5000 pairs. It takes a shoemaker 15 minutes to produce a pair of shoes. Each shoemaker works 150 hours per month plus up to 40 hours per month of overtime. A shoemaker is paid a regular salary of $2000 per month plus $50 per hour for overtime. At the beginning of each month, shoemakers can either hire or fire workers. It costs the company $1800 to hire a worker and $2200 to fire a worker. The monthly holding cost per pair of shoes is 3% of the cost of producing a pair of shoes with regular-time labour. (The raw materials in a pair of shoes cost $10.) Formulate an LP that minimizes the cost of meeting (on time) the demands of the next six months. At the beginning of month 1, shoemakers have 13 workers.

Solution Holding Cost per pair of shoes for one month is approximately 0.03*[(1/4)*(2000/150) + 10] = $0.40 We assume that even though a shoemaker is paid for 150 hours of regular time labor per month, he may be idle for part of those 150 hours. This would happen if holding and/or firing costs are very high. After defining Wt = shoemakers available (after hiring and firing) to work during month t It = pairs of shoes in inventory at end of month t Ht = shoemakers hired at beginning of month t Ft = shoemakers fired at beginning of month t Rt = pairs of shoes made during month t with regular time labor Ot = pairs of shoes made during month t with overtime labor We obtain the following formulation: Min z = 2000(W1+W2+W3+W4+W5+W6) + 10(R1+R2+R3+R4+R5+R6)+10(O1+O2+O3+O4+O5+O6) +0.4(I1+I2+I3+I4+I5+I6)+12.5(O1+O2+O3+O4+O5+O6)+1800(H1+H2+H3+H4+H5+H6) +2200(F1+F2+F3+F4+F5+F6) Subject to I1 = O1+R1-5000 I2 = I1+O2+R2-6000 I3 = I2+O3+R3-5000 I4 = I3+O4+R4-9000 I5 = I4+O5+R5-6000 I6 = I5+O6+R6-5000 Rt <= 600Wt for t = 1,2,6 Ot <= 160Wt for t = 1,2,6 W1 = 13 + H1-F1 Wt = Wt-1+Ht-Ft for t = 2,3, 6 All variables >= 0. Question 4. Stockco is considering 4 investments. Investment 1 will yield a net present value (NPV) of 16000$; investment 2, an NPV of 22000$; investment 3, an NPV of 12000$; and investment 4, an NPV of 6000$. Each investment requires a certain cash outflow at the present time: investment 1, 5000$; investment 2, 7000$; investment 3, 4000$ and investment 4, 3000$. At present, 14000$ is available for investment. Besides that, if investments 2 and 3 are chosen, then investment 4 must be chosen. Formulate an IP whose solution will tell the company how to maximize the NPV obtained from investment 1-4. Solution xj = 1
0

if investment j is made
otherwise

Max Subject to

z= 16x1+22x2+12x3+6x4 5x1+7x2+4x3+3x4 14 x2 + x3 <= x4 + 1 xj = 0 or 1 (x2 + x3 = 2 implies x4 = 1)