IE 173 Operations Research I

Problem Set 1
NOTE: No need to submit your answers.

1. Korea National Bank is preparing to invest up to 5 billion won of its cash reserves. The
bank is considering the following alternatives:
Alternative Expected Rate of Return (%) Risk factor
Treasury securities 7.6 0
Corporate bonds 8.9 1
Loans to corporations 10.3 2
Stocks 14.0 5

The expected return is measured in percent over one year. The risk factor is a projection
for next year, based on experience. The bank’s investment policy requires that:
a) The amount loaned to corporations will not exceed the amount invested in Treasury
securities.
b) The weighted risk factor will not exceed 1.9.
c) For every won invested in stocks, there will be at least 0.5 won invested in Treasury
securities.
d) The amount invested in stocks will not exceed 25% of the total amount invested.
Find the investment portfolio that will maximize the bank’s return on investment.
Note: To find the weighted risk factor, multiply the amounts invested with the
corresponding risk factor and divide by the total investment.
2. Woodco sells 3-ft, 5-ft, and 9-ft pieces of lumber. Woodco’s customers demand 24 3-ft
boards, 20 5-ft boards, and 15 9-ft boards. Woodco must meet its demands by cutting up
17-ft boards. Woodco wishes to minimize the waste incurred in meeting customer
demands. Formulate an LP to help Woodco accomplish its goal.
3. The nursing home is considering providing two desserts to its residents – cupcakes and
bananas, which cost P25 and P10, per serving respectively. 5 important vitamins and
minerals are in the cakes and bananas, in the quantities as shown in the table below,
which also indicates the minimum daily requirements of each nutrient:
mg/g Minimum
Vit/Min Cake Banana Daily Req’t. (mg/g)
1 200 250 300
2 150 50 250
3 0 60 80
4 45 25 100
5 100 240 400
Find the least cost dessert blend for each resident (the optimal amount will be multiplied
by the number of residents to get the amount needed for the nursing home); that is, how
many pieces of cakes and bananas will be ordered per resident?
IE 173 Operations Research I
Problem Set 1
NOTE: No need to submit your answers.

4. The Medequip Company produces precision medical diagnostic equipment at two

factories. Three medical centers have placed orders for this month’s production output.
The table below shows what the cost would be for shipping each unit from each factory
to each of these customers. Also shown are the number of units that will be produced at
each factory and the number of units ordered by each customer.

Unit Shipping Cost

From/To Output
Customer 1 Customer 2 Customer 3
Factory 1 $600 $800 $700 400 units
Factory 2 $400 $900 $600 500 units
Order Size 300 units 200 units 400 units

A decision now needs to be made about the shipping plan for how many units to ship
from each factory to each customer. Formulate a linear programming model for this
problem.

5. PROGRESS CITY is studying the feasibility of introducing a mass transit bus system that
will alleviate the smog problem by reducing in-city driving. The initial study seeks to
determine the minimum number of buses that can handle the transportation needs. After
gathering necessary information, the city engineer noticed that the minimum number of
buses needed fluctuates with the time of the day. Studying the data further, it became
evident that the required number of buses can be approximated by constant values over
successive interval of 4 hours each day. The following table summarizes the engineer’s
findings.

Number of buses
12am-4am 4
4am-8am 8
8am-12pm 10
12pm-4pm 7
4pm-8pm 12
8pm-12am 4

To carry out the required daily maintenance, each bus could operate only 8 successive
hours a day. Formulate a linear programming model for this problem.