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    • Profile photo of John Moffat says

      For there to be no slack for the demand, it would mean the the optimal mix would have been at corner C (if there is no slack, then the optimum must be at a corner where demand is one of the lines). (That would only happen if the contribution line was different).

      Then you would carry on the same way as usual and calculated how the optimal mix would change the demand was 1 unit more. The shadow cost would be the extra contribution generate.

  1. avatar says

    good day Sir,

    please if i guess a different value from what you guessed will i still get the final answer including slack and the shadow price. and if not, what is the solution.

    • Profile photo of John Moffat says

      If you are meaning guessing a contribution in order to be able to draw the contribution line, then it won,t affect anything else at all. All we need is the angle/slope of the line and that will be the same whatever value of contribution you choose.
      I think it will be helpful for you to watch the lecture again.

      • avatar says

        Yes sir i watch the lecture full,but there is one test that is give at the end of notes,this creating problem for me , how the answer is 6.7 ,you add simply shadow price and cost of material Z , but why you add only these two values.whats the reason behind this. (page 37 on notes )Thank you

      • Profile photo of John Moffat says

        The shadow price is the most extra that we would be prepared to pay for one extra unit of the limited resource.
        The current price is $3 per kg.. The most extra we are prepared to pay is $3.70 per kg..
        Therefore the most in total we are prepared to pay is $6.70 per kg..

        I do actually stress this in the lecture and explain why.

    • Profile photo of John Moffat says

      The shadow price is the most extra that you would be prepared to pay for one extra unit of the limited resource.
      It is calculated by taking one extra unit and calculating the extra contribution that would be earned.
      If there is slack demand, it means that we are already producing less than the limit, so even if the limit on demand was increase by 1 to 11, we couldn’t produce any more and therefore could not make any more contribution.

  2. avatar says

    This lecture keeps stopping after 7 mins and will not play any further. I have watched the previous lectures with no issues.
    I have updated my flash player and cleared the history/cache etc and still stops at 7 mins – any ideas on what else I need to do – to be able to watch the lectures.

    Thanks
    Shelley

  3. avatar says

    Hi Sir,

    About shadow pricing, How the extra contribution is regarded wholly to the cost? If the contribution is in whole becoming the cost, there is no point to stretch the additional constraint. Because the benefit all becomes the cost.

    • Profile photo of John Moffat says

      What you say is true.
      That is why the shadow price is the most extra we are prepared to pay for one extra unit of the limited resource.
      So…..provided we can get it for less then it is worth having (because the total contribution will increase).

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