Shadow Prices

This topic contains 2 replies, has 3 voices, and was last updated by avatar amrita 4 years, 8 months ago.

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    there r around 4 to 5 constraints in a question
    for instance
    labour – 4s + 2b = 26000

    material 5s + 2b = 30000

    s= 6000—-(iii)
    etc etc
    calculate shadow price for labour

    so we ll take 2 equations, labour for sure
    which will be the second one?
    coz answer as to contribution is different on using both 2nd and 3rd equations
    so value of s and b by using i and ii will be different and by using i and iii will be different

    please advise


    Why do you need a second equation. For Shadow pricing you will write the
    Labour equation as : 4s + 2b = 26001
    Now you have the value of s, just substitute it in the above equation. 4×6000 +2b =26001
    Now you will get the value of b, Substitute this value of b and s in the objective function/maximize contribution equation, and you will get a new contribution,
    Then all you have to do is compare this contribution with the contribution at the optimum level of prodution, the difference will be The Shadow Price for 1 extra unit of labour.


    or u could calculate the shadow price by simultaneous equations..
    where 4s+2b=26001
    5s+2b= 30000…
    solve the equations to get s and b..
    then get the contribution of the above units.. and compare it with the contribution of the previous units, that will give u your shadow price.

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