By: Addisalem T.

(MBA; PhD candidate in

Management )
 2.1. Introduction
All organizations have at their disposal, men, machines,
money, and materials, the supply of which may be limited
The basic problem of any organization is how to allocation
of scare resources efficiently
The management is, therefore, find the best to allocation of
resources among the various activities so as to optimize
the measure of effectiveness
Therefore, linear programming model is the best method to
use for such types of problems
LP is a mathematical method for determining a way to
achieve the best outcome (such as maximum profit or lowest
cost) in a given mathematical model for some list of
requirements represented as linear relationships.
By: Addisalem T.(MBA; PhD candidate in
Management )
 Components of LPM
1. Objective
2. Decision variables
3. Constraints
4. Parameters

By: Addisalem T.(MBA; PhD candidate in

Management )
 Assumptions of LP
 Linearity – each decision variable has a linear impact on the objective function and in

each constraint in which it appears. There is no squared, cubed, square root, products
etc in the model
 Divisibility/continuity – non integer values are acceptable to the potential values of

decision variables if they are continuous but not for discrete variables
 Certainty : Various parameters namely the objective function coefficients, the

coefficients of inequality/equality constraints and the constraints (resource) values are

known and constant. Hence, linear programming is deterministic in nature

By: Addisalem T.(MBA; PhD candidate in

Management )
 Assumptions of LPP
 Proportionality: there has to be proportional contribution of the

decision variables exists in the objective function and the

constraint inequalities
 Finite choices – A linear programming model also assumes that

a limited number of choices are available to the decision maker

 Non-negativity – all the decision variables will never assume

negative values and hence we consider the first quadrant in the

x-y coordinate
By: Addisalem T.(MBA; PhD candidate in
Management )
Structure of LPM

By: Addisalem T.(MBA; PhD candidate in

Management )
 Where:
• (< = >) means any of the three signs may be there
• Optimize means maximize or minimize objective function
• The right hand side (RHS) of each constraints are non-negative.
• Inequality constraints can be changed to equality by adding or
subtracting the LHS of each constraint by non-negative variable i.e.,
a slack variable S1 is added to LHS of constraint with the sign < and
a surplus variable S2 is subtracted on the LHS of constraint with the
sign >) and also artificial variables in case of equal signs and > signs
• aij and bm are known coefficients and xj is unknown variable

By: Addisalem T.(MBA; PhD candidate in

Management )
 Formulation of LPM
Step 1: Identify the unknown decision variables to be determined.
These should be brought into algebraic relation form

Step 2: Clearly define all the limitations for a given situation.

These limitations or constraints also need to be expressed in
algebraic form either as linear equations or inequalities in terms of
the decision variables so identified in step 1

Step 3: Identify the objective to be optimized and it also should be

expressed in terms of linear function of decision variables

By: Addisalem T.(MBA; PhD candidate in

Management )
 Exercise 1
 The Graduating Class students at Rift valley university Hossana campus

have searching for means to raise funds to finance their graduate Album
preparation and finally they have decided to raise funds by selling three
types of T-shirt: one with a black-color “Ordinary” design, one with a
blue-color “fancy” design, and one with white-color “very fancy” design.
The committee feels that it can sell up to 300 T-shirts. “Ordinary” T-shirts
will cost Birr 60 each, “fancy” T-shirts Birr 80 each, and “very fancy” T-
shirts Birr 100 each, and the committee has a total purchasing budget of
Birr30,000. It earned a profit of Birr 40 from the each Ordinary T-shirt,
Birr 50 from each fancy, and Birr 40 from each very fancy T-shirt.
Develop the LPM.

By: Addisalem T.(MBA; PhD candidate in

Management )
SOLUTION
Let us take x for ordinary, y for fancy and z for
very fancy
Then Max z: 40x+50y+40z
St to
x+y+z ≤ 300
60x+80y+100z ≤ 30000
x,y,z ≥ 0

By: Addisalem T.(MBA; PhD candidate in

Management )
Ex.2. An electronic firm is undecided at the most profitable mix for
its products. The products manufactured are transistors, resistors
and carbon tubes with a profit of (per 100 units) US $ 10, $6 and $4
respectively. To produce a shipment of transistors containing 100
units requires 1 hour of engineering, 10 hours of direct labor and 2
hours of administrative service. To produce 100 units of resistors
requires 1 hour, 4 hours and 2 hours of engineering, direct labor and
administrative time respectively. For 100 unit of carbon tubes it
needs 1 hour, 6 hours and 5 hours of engineering, direct labor and
administrative time respectively. There are 100 hours of
engineering time, 600 hours of direct labor and 300 hours of
administrative time available. Formulate the corresponding LPP.

By: Addisalem T.(MBA; PhD candidate in

Management )
Let the firm produce x hundred units of
transistors, y hundred units of resistors and z
hundred units of carbon tubes. Then the total profit
to be maximized from this out put will be
Maximize z = 10x + 6y + 4z
s/t x + y + z < 100
10x + 4 y + 6z < 600
2x + 2y + 5z < 300
Where x,y,z > 0 as the non-negativity restriction

By: Addisalem T.(MBA; PhD candidate in

Management )
Ex. 3. : Two commodities P1 and P2 are to be produced.
The profit Margin on P1 is $ 8 and on P2 is $ 6. Both the
commodities are required to be processed through two
different machines. Sixty hours of time are available on I
machine and forty eight hours of time are available on II
machine. One unit of P1 requires 4 hours of time in
machine I and 2 hours of time on machine II. Similarly,
one unit of P2 requires 2 hours of time on machine I and 4
hours of time on machine II. Determine the number of
units of P1 and P2 to be produced in order to maximize the
profits using graphical method?
By: Addisalem T.(MBA; PhD candidate in
Management )
Let x1 be number of units to be produced for P1
Let x2 be number of units to be produced for P2
X1 and X2 are unknown decision variables.
 Objective function is profit maximization and can be expressed as.

Max Z= 8x1 + 6x2

The given constraints are time and machine and can be converted
into linear relations as follow:
4x1 + 2x2 < 60 (i)
2x1 + 4x2 < 48 (ii)
Where x1, x2 > 0 non-negativity condition.

By: Addisalem T.(MBA; PhD candidate in

Management )
EX.4. : A company is making two products A and B. The cost of
producing one unit of product A and B is $ 60 and $ 80 respectively.
As per the agreement, the company has to supply at least 200 units
of product B to its regular customers. One unit of product A requires
one machine hours whereas product B has machine hours available
abundantly within the company. Total machine hours available for
product A are 400 hours. One unit of each product A and B requires
one labor hour each and total of 500 labor hours are available. The
company wants to minimize the cost of production by satisfying the
given requirement.
Formulate the problem as a linear programming problem.

By: Addisalem T.(MBA; PhD candidate in

Management )
EX 5: A firm that assembles computers computer equipment is about to start
production of two new micro computers. Each type of microcomputer will
require assembly time, inspection time, and storage space. The amount of each of
there resources that can be devoted to the production of micro computers is
limited. The manager of the firm would like to determine the quantity of each
micro computer to produce in order to maximize the profit generated by sales of
these micro computers.
Additional information

In order to develop a suitable model of the problem, the manager has met with
the design and manufacturing personnel. As a result of these meetings, the
manager has obtained the following information:

By: Addisalem T.(MBA; PhD candidate in

Management )
 Type 1 Type 2
Profit per unit $ 60 $ 50
Assembly time per unit 4hrs 10hrs
Inspection time per unit 2hrs 1hr
Storage space per unit 3 cubic ft 3 cubic ft

The manager also has acquired information on the available company resources. These
(weekly) amounts are:
Resource Resource available
Assembly time 100hrs
Inspection time 22hrs
Storage space 39cubic feet

The manager has also met with the firms marketing manager and learned that demand for
the micro computers was such that what ever combination of these two types of micro
computers is produced, all of the out put can be sold.
By: Addisalem T.(MBA; PhD candidate in
Management )
Example -6- ABC mixes two foods for a special
diet. Food K has 30 units of vitamin C and 90 units
of vitamin D per kg. Food L has 40 units of vitamin
C and 50 units of vitamin D per kg. The mixture is to
have at least 1,200 units of vitamin C and at least
2970 units of vitamin D. If Food K costs 30 cents
per kg, and Food L costs 20 cents per kg, how many
kg of each food should be used to meet this
requirement while keeping costs to minimum?

By: Addisalem T.(MBA; PhD candidate in

Management )
Solution: The above information can be given as below table:

Vitamin C vitamin D Cost

Food K 30 90 30

Food L 40 50 20

Limit ≥ 1,200 ≥ 2970

Let x1 be number of kg of Food K

Let X2 be number of kg of Food L

The objective is to minimize cost, thus,

Z min = 30X1 + 20X2

Subject to: 30X1+ 40X2 ≥ 1,200

90X1 +50X2 ≥ 2,970

X1, X2 ≥ 0 (non negativity constraints)

By: Addisalem T.(MBA; PhD candidate in
Management )
 Let us have the manufacture of x 1 and x2
units of product A and B respectively. Then
the given data indicates the relationship of
decision variables as follows:
Objective function: Minimise cost =60x1 + 80x2
Constraints: x2> 200 (Agreement for supply)
x1 < 400 (machine hours for product A)
x1 + x2< 500 (labour hours)
x1 , x2> 0 ( non –negative constraint)

By: Addisalem T.(MBA; PhD candidate in

Management )
 Graphical Solutions for LPP
To use the graphic method, the following steps are needed:
Step 1:
1 Formulate the LPM as explained before
Step 2: Draw a graph the constraint sets on the x-y plane
Convert the inequalities in to equality
Identify the x and y intercepts and draw the line that joins them
 shade the feasible solution region by considering the inequality
sign
Step 3: Identify the extreme/corner points
Step 4: evaluate the objective function using the corner points

By: Addisalem T.(MBA; PhD candidate in

Management )
 …continued
In case of maximizing objective function Z, the corner point
of feasible region giving the maximum value of Z becomes
the value of decision variables
Similarly in minimizing case, the point of minimum value
of Z gives the answer

Note: Graphical LPP is a two-dimensional model (it considers

only two decision variables)

By: Addisalem T.(MBA; PhD candidate in

Management )
Example: Graphic Solution
Approach

By: Addisalem T.(MBA; PhD candidate in

Management )
 The Simplex Algorithm Approach
When a large number of variables (more than 2) are
involved in a problem, the solution by graphical method is
not possible
Therefore, the simplex method provides an efficient
technique which can be applied for solving LPPs of any
magnitude, involving two or more decision variables
In this method, the objective function is used to control the
development and evaluation of each feasible solution of
the problem

By: Addisalem T.(MBA; PhD candidate in

Management )
The simplex Algorithm is an iterative procedure for
finding, in a systematic manner, the optimal solution that
comes from the corner points of the feasible region
 Simplex algorithm considers only those feasible solutions
which are provided by the corner points and that too not
all of them
The technique also has the merit to indicate whether a
given solution is optimal or not
This method was formulated by G.B. Dantzig in 1947.

By: Addisalem T.(MBA; PhD candidate in

Management )
 Basic terms in simplex approach
Standard Form: with linear relationships of objective
function and constraints, making RHS of constraints as
equal produces standard form, whereas the inequality
situation is called canonical form
Slack/surplus and Artificial Variables: these are generally
designated as S1, S2 . . . . etc. and A1, A2 etc. respectively
Slack variables indicate unused capacity of a constraint
added in ‘≤’ constraints
Surplus variables indicate excess usage of resources which
is deducted from the right hand side value of a ≥ a
constraint
Artificial variables are imaginary variables added in ‘=‘ &
≥ constraints to have the standard form
Simplex Table: A table used for calculations during various
By: Addisalem T.(MBA; PhD candidate in
iterations of the Management
simplex ) procedure, is called Simplex table
 Example:
Max Z = 6X1 + 8X2
S.t: 5X1 + 10X2 ≤ 60
4X1 + 4X2 ≤ 40
X1, X2 >= 0
The Standard form of the LPM:
Max Z = 6X1 + 8X2 + 0S1 + 0S2
S.t: 5X1 + 10X2 + S1 = 60
4X1 + 4X2 + S2 = 40
X1, X2, S1, S2, ≥ 0
 Since slack /surplus does not provide any real contribution

to the [Link], each slack or surplus variable is assigned a

coefficient of zero in the objective function
By: Addisalem T.(MBA; PhD candidate in
Management )
Initial simplex tableau

By: Addisalem T.(MBA; PhD candidate in

Management )
 Interpretation
Cj = the coefficient of the variables in the objective
function in the standard form
Cb = the coefficient of basic variables in the obj. fun
X1, X2, ..Xn = decision variables
S1, s2, Sn = basic variables (slack) and artificial variable =
A1, A2,…)
a11, a12,… coefficient of DV in the constraint set
1, 0, 1 are coefficient of basic variables in the constraints set
RHSV = the right hand side value of the constraints
Cj - Zj = Index Row: The row containing net profit or loss
resulting from introducing one unit of the variable in that
column in the solution. A positive number in the index row
would indicate an algebraic reduction or increment in the
objective function if one unit of the variable of that column
is introduced in the basis
By: Addisalem T.(MBA; PhD candidate in
Management )
Pivot -Column: The column with the largest positive
number in Cj - Zj row in a maximization problem or the
smallest number in a minimization problem is called
Pivot column. This indicates the variable entering the
solution in the next iteration by replacing an appropriate
variable.
Pivot Row: it is the ratio of quantities divided by of
the Pivot column which indicates the outgoing variable
to be replaced by the entering variable. This would be
the one with the smallest positive value of the ratio
column
Pivot Element: The element at the point of intersection
of the key column and the key row is called the Pivot
element

By: Addisalem T.(MBA; PhD candidate in

Management )
Example: Maximization problem

By: Addisalem T.(MBA; PhD candidate in

Management )
 Steps in Simplex Method
Step 1: Write the problem in Standard form
Max Profit = $70T + $50C + 0S1 + 0S2
Subjectto:
2T + 1C + 1S1 + 0S2 = 100

4T + 3C + 0S1 + 1S2 = 240

T, C, S1, S2 ≥ 0

By: Addisalem T.(MBA; PhD candidate in

Management )
Step 2: develop Initial Simplex Tableau

By: Addisalem T.(MBA; PhD candidate in

Management )
 Interpretation for Initial simplex tableau
The number in the first row represent the coefficients in the first
constraint and the numbers in the second row is the coefficients in the
second constraint
Initial solution is T = 0 and C= 0 a, So, S1 = 100 and S2 = 240, max of Z
=0
The two slack variables are the initial solution mix where the values are
found in the Quantity column
 The Substitution Rates:
The coefficient of the constraint equations are the substitution rates
Using variable T, to produce 1table; 2 units of S1 and 4units of S2
have to be removed from the solution, has to be consumed
Using variable C: to produce 1 chair; 1 unit of S1 and 3units of S2
should be consumed or removed from the solution mix
The slack variables should make an identify matrix
By: Addisalem T.(MBA; PhD candidate in
Management )
 Cj - Zj
The Cj – Zj number in each column represents the net profit
that will result from introducing 1 unit of each DV
It is computed by subtracting the Zj total for each column from
the Cj value at the very top of that variable's column
Obviously with a profit of $0, the initial solution is not optimal
By examining the numbers in the Cj – Zj row in the table, we
can see that the total profits can be increased by $70 for each
unit of T and $50 for each unit of C
A negative number in Cj – Zj row would tell us that the profits
would decrease if the corresponding variables were added to
the solution mix
An optimal solution is reached when there are no positive
numbers in the Cj - Zj row in case of maximization problem
By: Addisalem T.(MBA; PhD candidate in
Management )
 Step 3: Determining Entering and leaving variables
Determining the entering variable: For a maximization problem;
the entering variable is identified as the one which has the largest
positive value in Cj-Z row. The column which corresponds to the
entering variable in the simplex tableau is called pivot column.
In a minimization problem, the entering variable is identified as the
one which has the largest negative Cj-Z row value in the simplex
tableau.
Determining the leaving variable:
variable the leaving variable is identified
as the one with the smallest non-negativity ratio for quantity divided
by respective positive pivot columnar entries. The row of the leaving
variable is pivot row
The number at the intersection of the pivot row and pivot column is
the pivot number pivot number

By: Addisalem T.(MBA; PhD candidate in

Management )
 The Second simplex Tableau

All the pivot column elements except the pivot number (has
to be 1)
1 should be changed to Zero by applying row operation
By: Addisalem T.(MBA; PhD candidate in
Management )
 2 1 1 0 100

Divide all the pivot row by the pivot number i,e,. By 2

1 0.5 0.5 0 50

Apply row operation to change the pivot column elements to be zero, keeping
that the pivot number to be one
The operation is applicable to all of the row elements

Row operation: -4R1 + R2 = R2

-4 -2 -2 0 -200

4 3 0 1 240

When you sum up the above two rows using the operation the resulting R 2
value will be:
0 1 -2 1 40
By: Addisalem T.(MBA; PhD candidate in
Management )
The Resulting simplex is:

By: Addisalem T.(MBA; PhD candidate in

Management )
 Interpretation of the 2nd simplex table
The current solution is 50 tables and zero chairs generates a
profit of $3500
T is a basic variable and C is a non-basic variable here
Slack variable S2 is the unused time in the carpentry dep’t
and is in the basis.. Its value implies there is 40 hours of
unused carpentry time remaining.
Slack variable S1 is non basic and it means no unused time
in the painting dep’t

By: Addisalem T.(MBA; PhD candidate in

Management )
The substitutions:
In column C, if 1 unit of C is added to the current solution,
0.5 unit of T and 1 unit of S2 must be given up
Because these are marginal rate of substitution, so only 1
more unit of S2 is needed to produce 1 chair
In column S1, the substitution rates means that if 1 hour of
slack painting time is added to produce a chair, 0.5 less of a
table will be produced
Cj – Zj row is important for two reasons:
First, it indicates whether the current solution is optimal –
when there are no positive values in the bottom row, an
optimal solution to a maximization LP has been reached
Second, we use it to determine which variable will enter the
solution mix By: Addisalem T.(MBA; PhD candidate in
Management )
Developing the Third Simplex tableau

By: Addisalem T.(MBA; PhD candidate in

Management )
Developing the Third Simplex tableau

By: Addisalem T.(MBA; PhD candidate in

Management )
 Optimal solution
Therefore, optimal solution is reach now because all the
elements in the last row is zero and negative and hence:
T = 30units
C= 40 units and
Max Profit = $4100

S1 = 0 and S2 = 0

By: Addisalem T.(MBA; PhD candidate in

Management )
 QUIZ 1: (5 %)
1. List down and briefly discuss at least 4 (Four)
assumptions of LPP(2%)
2. Develop Initial Simplex tableau for the following LPM:
(3%)
Z max = 40X1 + 32X2
Subject to:
 40X1 + 20X2  600
 4X1 + 10X2 100
 2X1 + 3X2  38
 X 1 , X2  0
NB: Clearly show the procedure of how you select pivot row, pivot
column By: and pivot
Addisalem element
T.(MBA; PhD candidatefor
in the initial tableau.
Management )