Linear programming, Financial Management

Linear programming, one of the important techniques of operations research, has been applied to a wide range of business problems. This technique is useful in solving decision making problems which involve maximizing a linear objective function subject to a set of linear constraints.

Linear programming is helpful in solving a variety of problems in finance, budgeting and investments. The important applications of this technique are in the following areas:

  • Selection of a product mix which maximizes the profits of the firm subject to several production, material, marketing, personnel and financial constraints.

  • Determination of the capital budget which maximizes the net present value of the firm subject to several financial, managerial, environmental, and other constraints.

  • Choice of mixing short-term financing which minimizes the cost subject to certain funding constraints.

This note, expounding the basis of linear programming is divided into four sections including this introductory section. Section II presents the graphical method of solving the linear programming problem. Though this method can be applied only to those problems having only two basic variables, it is a very useful pedagogic device to understand certain concepts underlying the more advanced methods of linear programming. 

Posted Date: 9/13/2012 8:22:15 AM | Location : United States

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