As I explain in the lecture, resources are virtually never completely limited in real life – you can always get more but you will have to pay a higher price. For example, getting more than the normal labour will mean paying overtime and therefore paying more per hour.

The shadow price tells you how much extra it is worth paying in order to get more of the resource.

Okay. Thanks John. So we can only calculate shadow prices for critical (or binding) constraints right. I made to understand from your lecture that slack can also be applied to a product and not only resources for example in our example the demand for E.

Thanks John well explained. Shadow price is only applicable to critical (binding) constraints that give rise to the optimal solution as there is no slack for these resource lines.

what a brilliant explanation for shadow price,understood that for every extra unit of limited resource the most extra we would pay is the difference of revised contribution and old contribution (assuming that the price per kilo is same)

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alie2018 says

John what’s the effect of slack and shadow price?

John Moffat says

As I explain in the lecture, resources are virtually never completely limited in real life – you can always get more but you will have to pay a higher price. For example, getting more than the normal labour will mean paying overtime and therefore paying more per hour.

The shadow price tells you how much extra it is worth paying in order to get more of the resource.

alie2018 says

Okay. Thanks John. So we can only calculate shadow prices for critical (or binding) constraints right. I made to understand from your lecture that slack can also be applied to a product and not only resources for example in our example the demand for E.

alie2018 says

For critical constraints there is no slack but shadow price and for non-critical constratints there’s slack but no shadow price

alie2018 says

Thanks John well explained. Shadow price is only applicable to critical (binding) constraints that give rise to the optimal solution as there is no slack for these resource lines.

John Moffat says

Correct – the shadow price of the non-critical constraints is therefore zero.

aliansari14 says

what a brilliant explanation for shadow price,understood that for every extra unit of limited resource the most extra we would pay is the difference of revised contribution and old contribution (assuming that the price per kilo is same)

John Moffat says

Thank you for your comment 馃檪

aissata says

Dear Sir,

thank you so much for this brilliant lecture.

With kind regards,

John Moffat says

Thank you for your comment 馃檪