LINEAR AND NON-LINEAR

PROGRAMING MODELS

Vikram Sai
Petroleum Engineering
ISM Dhanbad

Shubham Satyarth
Petroleum Engineering
ISM Dhanbad

OVERVIEW
Firms want to make as much money as possible or
maximize their profit.
Firms want their cost to be minimum. Lower the
costs, higher the profits.
This process of maximizing or minimizing is known
as optimization, or mathematical programming.
Striving to find the optimum solution is a goal in
many areas, not just business, or Economics and
Finance.
Physics, Chemistry, Biology, Health Care or
Engineering are just some of the areas these
problems arise in.

1.Decision
variables

2.Objective function

A mathematical
relationship
describing an
Mathematical symbols
objective of the firm,
in
representing levels of
terms of decision
OPTIMIZATI
activity of a firm
OPTIMIZATION
variables.
ON
MODEL
MODEL

3.Constraints

4.Parameters

Restrictions placed on the

firm by the operating
environment stated in
linear relationships of the
decision variables

Numerical coefficients
and constants used in
the objective function
and constraint equations.

LINEAR PROGRAMMING

Objective function is to be optimized

and all the constraints, are linear in
terms of the decision variables.

Petroleum Products
One 42-gallon barrel of oil creates 19.4
gallons of gasoline.
The rest (over half) is used to make
things like:
Nail Polish
Petroleum Jelly
Tyres
Brushes
Plastic Toys

EXAMPLE
SMUTCHUCK Fancy Stores
Smith makes $200 worth of profit from
every Nail polish he sells, and $50 worth of
profit from every petroleum Jelly he sells.
Each Nail polish requires 10 units of
Petroleum Product and 3 hours of NonPetroleum Product, and each petroleum Jelly
requires 5 units of Petroleum Product and 4
units of Non-Petroleum Product.
Smith has 100 units of Petroleum Product
and 60 units of Non-Petroleum Product
available.

EXAMPLE
PRODUCT

Nail Polish
Petroleum
Tabular Representation

Available

Jelly

Petroleum
Products

10

100

NonPetroleum
Products

60

EXAMPLE

Lets denote
The number of Nail polishes produced by
X1
The number of petroleum Jellys produced
by X2.
Smiths total profit will be
Z= 200 X1+50 X2
This is the objective function

Solution
Methodology/Implementation

GRAPHICAL SOLUTION
Limited to models including two variables,
but it is very useful as it provides a better
understanding of the solution.
We start with a system of coordinates with
X1 on the horizontal axis, and X2 on the
vertical axis.

Petroleum Product Constraints

Petroleum Product constraint, 10 X1+5 X2 100

Non-Petroleum Product Constraint

Non-Petroleum Product Constraint: 3 X1+ 4

X2 60

Feasible Region

Area that satisfy all four constraints of the model:

10 X1+5 X2 100
3 X1+ 4 X2 60
X1 0
X2 0

Optimization

The profit function is Z= 200 X1+50 X2, and

it obviously includes a third variable, Z.
Lets just take an arbitrarily selected level of
profit, Z=100.

Optimization

The profit function becomes 100=200

X1+50 X2, and every combination of Nail
polishes and petroleum Jellys on this line
will result in a $100 profit.

Is this the best that the firm can do (i.e.

optimum)?

Optimization

It follows that the optimum combination of

Nail polishes and petroleum Jellys is point C.
Smith will need to produce all Nail polishes
(10 of them), and no petroleum Jellys in
order to maximize profits. The profit in this
case is Z=2000

Optimization

Steps of Optimization
Plot the model constraints as equations on
the graph
Find the feasible area
Represent the objective function
graphically, then move this line out from the
origin to find the optimum.
Find the coordinates of the optimum point
by solving a system of two equations with
two constraints.

DRAWBACKS OF GRAPHICAL
APPROACH

If the optimization problem is subject to

multiple
constraints,
graphically
representing the feasible area could be
more challenging.

If one of the parameters in the problem

changes (i.e. the profitability of each Nail
polish, or the amount of Non-Petroleum
Product required for each petroleum Jelly),
which is often the case in real life, one
would have to start from beginning in order
to solve the problem.

CORNER POINT
METHOD

Since we know the optimum will be on the

boundary of the feasible area, one can find
the coordinates of the corners, calculate the
value of Z for those coordinates, and
compare these values.

The point which leads to the highest (in the

case of maximization problems) Z or the
lowest (in the case of minimization) Z is the
optimum solution.

OPTIMIZATION USING EXCEL

Another option that is more sophisticated

and more simpler is the use of MS-EXCEL to
do the Optimization.

MS- EXCE
L

NON-LINEAR PROGRAMMING

In many interesting, real-world problems,

the objective function may not be a linear
function, or some of the constraints may
not be linear constraints.
Optimization
problems
that
involve
nonlinearities
are
called
nonlinear
programming (NLP) problem

Optimality Conditions
Unconstrained optimization multivariate
calculus problem. For Y=f(X), the optimum
occurs at the point where
f '(X) =0
and f''(X) meets second order conditions
A relative minimum occurs where f '(X) =0
and f''(X) >0
A relative maximum occurs where f '(X) =0
and f''(X) <0

Concavity and Second Derivative

Local max
& global
max
local max

f(x)<0

f(x)>0

local min

f(x)<0

f(x)>0

Local min &

global min

Method
The simplest method for solving nonlinear
programming model is the method of
substitution
In substitution method the constraint
equation is solved for one variable in terms
of another & then substituted into the
objective function.

Example
Profit analysis model
Z = vp-a-vb
Subject to
v = 1500-24.6p
Where, v is the volume
p is the price
Substituting the value of v in the objective
function

Example
Z=1500p-24.6p2-a-1500b+24.6pb
Substituting the value of constants as
a=10000$ ; b=8$
We get
Z=1696.8p-24.6p2-22000
dz/dp = 1696.8-49.2p
0=1696.8-49.2p
Solving for p
p=$34.49

Wellspun Inc. with Marketing

Costs

Market research indicates that wellspun could sell small numbers of Gas and Oil
with no advertising. However, extensive advertising would be required to sell all
that could be produced.

A curve-fitting procedure was used to estimate the weekly marketing costs

required to sustain a production rate of G Gas and O Oil:
Marketing cost for Gas = $25G 2
Marketing costs for Oil = ($662/3)O 2

The gross profit per unit of Gas sold is about $375, and the gross profit per unit
of Oil is about $700. Therefore, the net profits are as follows:
Net profit for Gas = $37G $25G 2
Net profit for Oil = $700O ($662/3)O 2

Thus, the revised objective function is

Maximize Profit = $375G 25G 2 + $700 O($662/3)O

Question: Considering the nonlinear marketing costs, how much Gas and
Oil should wellspun produce?

Profit Graphs for Gas and Oil

Weekly
profit
($)
1,800

Weekly
profit
($)

1,600

1,200

1,200

1,000

1,000

800

800

600

600

400

400

200

200

1,400

2
4
0
2
4
6
GD
ProductionratefordoorsProductionrateforwindows
Production rate of Oil
Production
rate of Gas

OW

Wellspun Problem with Nonlinear

costs

Production rate of Oil

Graphical Display of Nonlinear

Formulation

Production rate of Gas

Thank
You