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Question 10 – I’m a bit confused as to the shadow price. In the question material Z becomes available at $2 per kg which is the standard cost as stated previously.
This amount isn’t used in the calculation of the answer.If it was obtained at a different price how would this affect the answer?
Thanks
The shadow price is the most extra we would be prepared to pay for one extra unit of a limited resource. It is calculated at the extra contribution that we would earn if we were able to get one extra unit at the standard price.
Since the current standard cost must already have been taken into account in calculating the contribution, it is not ever relevant for calculating the shadow price.
I do suggest that you watch the free lecture on linear programming/
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