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A Model to Satisfy Increasing Demand at the Federal Reserve Branch in San Antonio, Texas

(Debbie Kading, 1991)

Increasing demand is a situation faced by nearly every institution involved with producing a good or service. The problem involves the economic analysis of various remedies to the increased demand and the decision to implement one of the alternatives. The Federal Reserve is one such institution facing the rising demand for new and clean currency. The alternatives for the Reserve to meet this demand are investigated but are identical to those found in nearly every business: overtime, purchase of new equipment, second shifts, extended shifts, and shipping part of the workload to other offices.

A mixed integer model is formed with the decision to implement each of the alternatives represented as a binary variable. The incremental cost associated with each alternative is the coefficient of the corresponding binary variable In the objective function. The optimal solution is the incremental increase in production cost associated with the most economical alternative that meets the demand as well as other constraints. In the case of the Federal Reserve, the decision to purchase new equipment proves to be optimal.

Richard S. Barr
Fri Feb 17 16:09:51 CST 2006