Question

USE EXCEL AND SOLVER ONLY TO ANSWER THIS QUESTION

Lauren Moore has sold her business for $500,000 and wants to invest in condominium units (which she intends to rent) and land (which she will lease to a farmer). She estimates that she will receive an annual return of $8,000 for each condominium and $6,000 for each acre of land. A condominium unit costs $70,000, and land costs $30,000 per acre. A condominium will cost her $1,000 per unit, an acre of land will cost $2,000 for maintenance and upkeep, and $14,000 has been budgeted for these annual expenses. Lauren wants to know how much to invest in condominiums and land to maximize her annual return.

1. Formulate a mixed integer programming model for this problem.

2. Solve this model by using the computer.

Answer 1

Answer:
Let A = No. of condominiums purchased
B = No. of acres of land purchased
	A	B
Annual Return	$         8,000	$           6,000
Cost	70,000	30,000	500000
Maintenance	1,000	2,000	14000
Formulation of LPP:
Maximize: Z = $8,000A + $6,000B	(Objective function)
Subject to:
$70,000A + $30,000B <= $500,000	(Investment condition)
$1,000A + $2,000B <= $14,000	(maintenance & upkeep cost condition)
A,B >= 0		(Non-negativity assumption)
Solution:
	A	B	Total Return
Annual Return	$         8,000	$           6,000
Units to purchase	5	4.5	$         67,000
			Total cost
Cost	$       70,000	$         30,000	$       485,000
Maintenance	$         1,000	$           2,000	$         14,000