Batch Planning and Resources Allocation

Lecture 2

14x2=28C, 14x1=14S

Conf.dr.ing. Virginia Ecaterina OLTEAN

Departamentul de Automatică şi Informatică Industrială

021-4029269

Remark: in fact, “resource allocation” or “allocation of resources”

Part I. Generalities concerning mathematical models of economic processes

1. Preliminaries: a first example of a production mix model

2. Special types of mathematical programming models – some interpreted examples and the economic
significance of DUALITY. First LP theoretical results

 Further LP examples and economic interpretation of duality

o The diet problem and its dual – economic interpretation, competitive prices
o Optimality criterion (lema and theorem) and Theorem of duality – statement
o Network models - The transportation problem and its dual

 Production models as input-output models (static Leontieff models) and related problems

 Price equilibrium (theorem of equilibrium and its reformulation as complementary slackness from Lecture
1) and economic interpretation for
 the production problem and for
 the transportation problem
in Lecture 3

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Conf. V.E. Oltean / BPRA. Part I- Generalities. 2. Special types of mathematical programming models. L2 2/11
1. Preliminaries (continued from previous lecture): a first example of a production mix model

Recall from Lecture 1:

MOTIVATION of using models
In order to study the economic processes and decisions systematically and to characterize classes of solutions for
classes of problems, it is necessary to abstract planning and resource allocation as MATHEMATICAL MODELS..

All these models have in common:

 an objective, or a cost function, depending on decision variables and
 a set of constraints, defining the feasibility domain where the decision variables may reside.

Informally, the economic problem is now to maximize or minimize the cost function against the constraints, i.e. a
CONSTRAINED OPTIMIZATION problem, as detailed in next Example

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Conf. V.E. Oltean / BPRA. Part I- Generalities. 2. Special types of mathematical programming models. L2 3/11
 Recall THE GENERAL PROBLEM OF OPTIMIZATION UNDER CONSTRAINTS:
maximize f (x ) (1)
subject to g( x)  b , x  X
where
x  Rn decision variables
f : Rn  R objective function
X  Rn regional constraints
g : Rn  Rm m functional equations (constraints)
b  Rm upper bound or constrained vector
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THE STANDARD THE CANONICAL
LINEAR PROGRAMMING (LP) PROBLEM LINEAR PROGRAMMING (LP) PROBLEM
T
max c x (2.1) max c T x (2.2)
Ax  b , x  0 Ax  b , x  0
where
A  R mn , x  R n , c  R n , b  R m

Remarks.
1) A vector of decision variables satisfying the constraints is called a feasible solution of P. Obviously, the optimal
solution(s) x * (if any) is feasible.
2) Linearity means there are no terms like xi2 , lg xi etc. neither in the objective function, nor in the constraints.
Else, NLP (nonlinear programming).
3) Note that there is a single objective function, but a series of constraints ,  or =.
4) The vector b is called also right-hand side column.
5) If some or all of the variables have to take integer values (like in job shop scheduling), IP (difficult!)

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Conf. V.E. Oltean / BPRA. Part I- Generalities. 2. Special types of mathematical programming models. L2 4/11
Example of an IP model: production mix (Williams, 1999).
1. Informal problem formulation (from lecture 1).
Consider the following information:
 5 types of products, PROD1, …, PROD5 are produced by means of
 2 production processes: 1) grinding (polizare) and 2) drilling (găurire-burghiere)

After deducing raw material costs, each unit of each product yields a contribution to profit (1st table row) and each
unit requires a certain time on each process, if necessary (2nd row in the table)

Table 1
PROD1 PROD2 PROD3 PROD4 PROD5
Contribution to profit (£) 550 600 350 400 200
Grinding time (hours) 12 20 - 25 15
Drilling time (hours) 10 8 16 - -
Employee’s time (hours) 20 20 20 20 20

There are: 3 grinding machines, 2 drilling machines and 8 workers, each one working an 8 hours shift/day. There are 2
shift/day and 6 working days/week.

Problem (informal): how much to make of each product per week, so as to maximize the total profit contribution?

2) Model building
Define the variables xi , i  1 : 5 , representing the unknown number of units of PROD1, …,PROD5, respectively.
The total profit contribution is the objective function
f ( x)  550 x1  600 x2  350 x3  400 x4  200 x5 (1)
where x  ( x1 x2 x3 x4 x5 ) T .

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Conf. V.E. Oltean / BPRA. Part I- Generalities. 2. Special types of mathematical programming models. L2 5/11
The constraints
 3 grinding machines can be used 2  8  6  96 hours/week each  3  96  288 hours TOTAL grinding capacity

12 x1  20 x2  25x4  15x5  288 (2)

 2 drilling machines can be used 2  8  6  96 hours/week  2  96  192 hours TOTAL drilling capacity

10 x1  8x2  16 x3  192 (3)

 8 assembly workers work each 48 hours/week  8  48  384 hours TOTAL working capacity

5
 20 xi  384 (4)
i 1
The model consists of problem (1) subject to constraints (2), (3) and (4), which are all, in this case, linear.
The LP problem can be written as:

max f (x )
g( x)  b , x  0 ,

where g (x ) , b can be specified and put into the linear form in (2.2) (exercise !).

Slack variables. The form of the constraint g( x)  b can be turned into an equality constraint by addition of a slack
variable. We write
g( x)  z  b , z  0 .

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Conf. V.E. Oltean / BPRA. Part I- Generalities. 2. Special types of mathematical programming models. L2 6/11
2. Special types of mathematical programming models – some interpreted examples and the economic
significance of DUALITY. First LP theoretical results

Return to the LP problem (1.1) and its dual D

P : max c T x D : min λ T b
Ax  b, x  0 AT λ  c , λ  0

The dual variables   R m are also called SHADOW PRICES, and the duality has remarkable ECONOMIC
significance, as detailed in the examples below.

It was mentioned, in previous exercises and applications, that

 the dual variables are also Lagrange multipliers in the Lagrange function associated to P (see later the NLP)
and
 they provide important information about the sensitivity of the optimal value f (x*) with the variation of the
upper bounding vector b  R m , more precisely, the entries of the optimal solution λ * of D are the coordinates of
the gradient of f (x*) in the space of “resources” b:
λ*  f ( x * (b))

It will be shown that if x * is feasible for P, λ * is feasible for D and they satisfy complementary slackness, then
they are optimal, respectively.

In this case: max c T x*  min λ *T b , i.e. both P and D have the same value !!!

Greater explanation later, in the duality theorem!

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Conf. V.E. Oltean / BPRA. Part I- Generalities. 2. Special types of mathematical programming models. L2 7/11
Example 1. THE DIET PROBLEM AND ITS DUAL –
economic interpretation, competitive prices
 “a classical illustration of LP” (Gale, 1960)); for the primal problem, see also the optimization lectures
 Strategic goal: optimally feeding a person or a community
1) The PRIMAL problem.
A DIETETICIAN is confronted with n foods, F1 , …, Fn , from which he has to select a DIET, i.e. to select the number
of units x j of each food F j , j  1 : n , to be consumed in a specified time interval (a year).
Each food F j contains m N 1 , …, N m nutrients, j  1 : n .
Denote a ij the amount (number of units) of nutrient N i in the food F j , i  1 : m , j  1 : n , and define the
nutrition matrix

F1 F2  Fn
N1 a11 a12 a1n
N2 a 21 a 22 a 2 n or A  (aij )1i m, (1)
1 j  n
 
Nm a m1 a m2 a mn

The TOTAL amount of N 1 in the diet is a11 x1  a12 x 2    a1n x n . Each person in the community is required
to consume at least bi units of nutrient N i , i  1 : m .

Denote:
x  ( x1 x 2  x n ) T the vector of unknown food quantities (number of food units), called diet .
b  (b1 b2  bm ) T the vector of minimal amount of nutrients.

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Conf. V.E. Oltean / BPRA. Part I- Generalities. 2. Special types of mathematical programming models. L2 8/11
 A feasible diet satisfies the linear constraints

Ax  b (2)

The dietetician must choose, among the feasible diets, the most economic diet. Also, each food F j has
associated a unit price or cost c j , j  1 : n . Denote c  (c1 c 2  c n ) T the vector of unit food costs.

The cost of the diet x is

f ( x)  c T x (3)
and the PRIMAL diet problem is

P : min c T x
(4)
Ax  b, x  0

2) The DUAL diet problem can be formulated as follows: assign values or prices  i to the nutrients N i , i  1 : m , in
such a way that:
 the sum of the values of nutrients in one unit of the food F j does NOT EXCEED the unit cost c j , j  1 : m and
 the TOTAL value of the amount of nutrients required by the diet be maximum,

hence
D : max λ T b
(5)
AT λ  c, λ  0

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Conf. V.E. Oltean / BPRA. Part I- Generalities. 2. Special types of mathematical programming models. L2 9/11
Economic interpretation.

In P (4) the ACTOR is the dietetician who aims to minimize the cost of the diet, provided that the scientific
composition is ensured.

In D (5) the ACTOR is the vitamin-pills salesman who aims to sell pills to the dietetician, in order to maximize the
total value of the nutrients N i , i  1 : m , in the diet, i.e. to
 maximize his return λ T b  1b1    m bm , provided that,
 for each food F j , the value of the total amount of nutrients in concentrated form does NOT exceed the unit
price, hence a j11    a jm  m  c j
 The dietetician accepts the offer, provided that he does NOT pay for vitamins MORE than he pays to the grocer
for foods (vegetables etc.), i.e. the vitamins diet is NOT more expensive than the pills diet !

Gale (1960): “In the dual problem, …, the nutrient prices  i are those which enable the pill man to realize the
maximum return and still compete favourable with the grocer. It is this idea of competitive prices which is
characteristic of the interpretation of the duality theorem”.

Hence:
 the diet problem is a mimimum cost problem,
 its dual is a maximum return problem and
 the dual variables have the significance of COMPETITIVE PRICES !

Consider a more formal approach concerning the concept of duality in LP.

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Conf. V.E. Oltean / BPRA. Part I- Generalities. 2. Special types of mathematical programming models. L2 10/11
 Recall the definition of a STANDARD LINEAR PROGRAMMING (LP) PROBLEM:
P: given A  R mn , c  R n and b  R m (usually m  n )
find x  R n (called decision variables or activities)
so that
1. the value of the objective function f : R n  R , f ( x )  c T x is maximized (or minimized) and
2. x  R n is required to satisfy the set of linear inequalities Ax  b , x  0 .

n
X  { x  R : Ax  b, x  0} is the feasible set of P and x  X is a feasible solution of P. P is feasible if X
is nonempty. A feasible solution x * s.t. f ( x*)  max c T x is called an optimal solution and f (x*) is the
xX
value of the linear program.

The dual problem of P is

D: given A  R mn , c  R n and b  R m
find λ  R m (called dual variables or shadow prices)
so that
1. the value of the objective function f ' : R n  R , f ' ( x)  λ T b is minimized (or minimized) and
2. λ  R m is required to satisfy the set of linear inequalities AT λ  c , λ  0 .

Lema 1 (weak duality). Let x  X be a feasible solution of P and let λ  R m be a feasible solution of D. Then

c T x  λT Ax  λ T b (1)

Proof. In Ax  b premultiply by λ T   ) Ax   ) b  λ T Ax  λ T b (a). In AT λ  c , premultiply by x T 

T T

x T AT λ  x T c  c T x (b). From (a) and (b) results (1).  . (to be continued in next lecture)
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Conf. V.E. Oltean / BPRA. Part I- Generalities. 2. Special types of mathematical programming models. L2 11/11