LEASE/BUY
Response to the following problem:
Schick Industries needs to replace some of its aging equipment that produces molded frames for its best-selling Schick racing cycle. Schick can lease machines with a rated capacity of 2000 frames per month for $3000 monthly. Alternatively, it can purchase smaller machines with a rated capacity of 800 frames per month for $ 10,000 down and $1000 monthly.
Schick only has $50,000 available to purchase machines now, which limits the number of machines that it could purchase to five. Schick must produce at least 10,000 frames per month to keep up with customer demand.
a. Formulate and solve a linear program for Schick to minimize its total monthly payments for machines.
b. Suppose that instead of minimizing total monthly payments, Schick wished to maximize total production capacity. Solve the problem with this objective and comment.
c. Comment on the validity of the linear programming assumptions for this model.