Difference between revisions of "Signomial problems"

Author: Matthew Hantzmon (Che_345 Spring 2015)

Introduction

Sigmoid problems are a class of optimization problems with the objective of maximizing the sum of multiple sigmoid functions. Sigmoid functions are shaped like an “S”, having both a convex and concave portion. The concave attributes will make solving the problems require a non-linear optimization, increasing computational burden. Though sigmoid problems are harder to solve than ordinary convex programs, they have many useful real-world applications which have encouraged their development.

Background

The S-shape of the individual sigmoid functions made them good representatives of economies of scale, or other situations where the supplier is facing a declining demand function and increased investment leads to a lower average cost to produce each good. Within the sigmoidal problem, the sigmoidal functions within the objective represent that initial increases in investment will increase profitability when there is excess demand at the current price. The inflection point in the sigmoidal functions represents the point where the marginal profit for producing another good becomes 0. At this point the decrease in marginal cost from investing in more production is matched by an equal decrease in willingness to pay by the marginal consumer. Past this point the function determines that increased investment will not increase profitability. These properties of the sigmoid functions allow them to be ideal representatives of situations where initial investment is profitable though a threshold is reached where no additional inputs will be profitable. Other situations that exhibit these characteristics and can be modeled with sigmoidal problems include election planning, lottery prize design, and bidding at an auction. Election planners always desire to find the locations where spending on advertising will have the greatest effect on election results. When designing a lotter, the company wants to design a prize value that encourages many people to buy tickets while still being net profitable for the lottery. At an auction, a bidder may not have enough capital to buy every item they may desire so it is important early on to not waste a disproportionate amount of money winning an item that is not important. A sigmoidal problem maximizing utility can help determine the threshold value to bid on each item.

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