LINEAR PROGRAMMING (LP), in accounting, is the mathematical approach to optimally allocating limited resources among competing activities. It is a technique used to maximize revenue, contribution margin, and profit function; or, to minimize a cost function, subject to constraints. Linear programming consists of two ingredients: (1) objective function and (2) constraints, both of which are linear. In formulating the LP problem, the first step is to define the decision variables that one is trying to solve. The next step is to formulate the objective function and constraints in terms of these decision variables.
ECONOMIC PROFITS is the difference between the total revenue and the total opportunity costs.
DECISION THEORY is a body of knowledge and related analytical techniques of different degrees of formality designed to help a decision maker choose among a set of alternatives in light of their possible consequences.
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