Role of LP in Economic Decision Making

Agricultural Applications

These applications fall into categories of farm economics and farm management. The former deals with agricultural economy of a nation or region, while the latter is concerned with the problems of the individual farm.

The study of farm economics deals with inter-regional competition and optimum allocation of crop production. Efficient production patterns can be specified by a linear programming model under regional land resources and national demand constraints.

Linear programming can be applied in agricultural planning, e.g. allocation of limited resources such as acreage, labour, water supply and working capital, etc. in a way so as to maximise net revenue.

Production Management

  1. Product mix: A company can produce several different products, each of which requires the use of limited production resources. In such cases, it is essential to determine the quantity of each product to be produced knowing its marginal contribution and amount of available resource used by it. The objective is to maximise the total contribution, subject to all constraints.
  2. Production planning: This deals with the determination of minimum cost production plan over planning period of an item with a fluctuating demand, considering the initial number of units in inventory, production capacity, constraints on production, manpower and all relevant cost factors. The objective is to minimise total operation costs.
  3. Assembly-line balancing: This problem is likely to arise when an item can be made by assembling different components. The process of assembling requires some specified sequence(s). The objective is to minimise the total elapse time.
  4. Blending problems: These problems arise when a product can be made from a variety of available raw materials, each of which has a particular composition and price. The objective here is to determine the minimum cost blend, subject to availability of the raw materials, and minimum and maximum constraints on certain product constituents.
  5. Trim loss When an item is made to a standard size (e.g. glass, paper sheet), the problem that arises is to determine which combination of requirements should be produced from standard materials in order to minimise the trim loss.

Financial Management

  1. Portfolio selection: This deals with the selection of specific investment activity among several other activities. The objective is to find the allocation which maximises the total expected return or minimises risk under certain limitations.
  2. Profit planning: This deal with the maximisation of the profit margin from investment in plant facilities and equipment, cash in hand and inventory.

Marketing Management

  1. Media selection: Linear programming technique helps in determining the advertising media mix so as to maximise the effective exposure, subject to limitation of budget, specified exposure rates to different market segments, specified minimum and maximum number of advertisements in various media. (if) Travelling salesman problem The problem of salesman is to find the shortest route from a given city, visiting each of the specified cities and then returning to the original point of departure, provided no city shall be visited twice during the tour. Such type of problems can be solved with the help of the modified assignment technique.
  2. Physical distribution: Linear programming determines the most economic and efficient manner of locating manufacturing plants and distribution centres for physical distribution.

Personnel Management

  • Staffing problem: Linear programming is used to allocate optimum manpower to a particular job so as to minimise the total overtime cost or total manpower.
  • Determination of equitable salaries: Linear programming technique has been used in determining equitable salaries and sales incentives.
  • Job evaluation and selection: Selection of suitable person for a specified job and evaluation of job in organisations has been done with the help of linear programming technique.

Other applications of linear programming lie in the area of administration, education, fleet utilisation, awarding contracts, hospital administration and capital budgeting.

 

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