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Hi john,
Would appreciate your guidance made on the statement made in bpp book,
”The shadow price of a resource is its internal opportunity cost. This is the marginal contribution towards fixed costs and profit that can be earned for each unit of the limiting factor that is available”
How is shadow price an opportunity cost ? does it mean that, for example- the company has 2 options,1) to increase contribution by creating 1 additional unit of the limiting factor and 2) losing the extra contribution that could be earned by not creating any additional unit of the limiting factor. And so in both of the options above the contribution earned/ lost is the shadow price.
What you have written in your second paragraph is correct.
However BPP do have a way of making things sound over-complicated – you do not need that statement in the exam 🙂
Have you watched my free lectures on linear programming? The explanations about the shadow price in the lectures is all that is needed for the exam.
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