(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.