Inverse Optimization: An Application to the Capacitated Plant Location Problem

Lagrangean techniques have had wide application to the optimization of discrete optimization problems. Inverse optimization refers to the fact that each time a Lagrangean calculation is made for a specific problem with a given resources vector, an optimal solution is obtained for a related problem with a suitably adjusted resources vector. This property is studied in depth for the capacitated plant location problem and new parametric methods for that problem are suggested. Computational experience is reported.