I am confused on the shadow prices part. Can we use the labour equation 5S + 6E = 181 to calculate the shadow price instead of material equation 2S + 4E = 81? Using labour equation, the shadow price will be $0.75. Is it appropriate to use labour equation to calculate shadow price?

Can you help me resolve one confusion. While calculating slack at the start of this video, it turned out to be zero in case of material and labour both. However, if i check the usage of material by using other method, it gives different result. What i did was that, we figured out that we are producing 30 standard chairs and 5 executive chairs. The quantity of material used in each chair is picked from the information given in question (i.e. 2 KG for standard and 4 kg for executive). When i multiply this by number of chairs produced it gives (i.e. 2*30 + 4*5) = 80 KG.

Same procedure i applied to calculate labour. Please let me where i am doing wrong.

Oops. I am sorry. i had 100KG of available material in my mind, i don’t know where it came from. Thank you for your patience to answer some silly questions.

kayb123 says

Dear Mr John,

I am confused on the shadow prices part. Can we use the labour equation 5S + 6E = 181 to calculate the shadow price instead of material equation 2S + 4E = 81? Using labour equation, the shadow price will be $0.75. Is it appropriate to use labour equation to calculate shadow price?

Please guide me on this. Thank you very much.

John Moffat says

It depends on whether we want the shadow price of materials or the shadow price of labour.

kayb123 says

Thanks for your reply Mr John. 🙂

John Moffat says

You are welcome 🙂

kamran.khan says

Dear John,

Can you help me resolve one confusion. While calculating slack at the start of this video, it turned out to be zero in case of material and labour both. However, if i check the usage of material by using other method, it gives different result. What i did was that, we figured out that we are producing 30 standard chairs and 5 executive chairs. The quantity of material used in each chair is picked from the information given in question (i.e. 2 KG for standard and 4 kg for executive). When i multiply this by number of chairs produced it gives (i.e. 2*30 + 4*5) = 80 KG.

Same procedure i applied to calculate labour. Please let me where i am doing wrong.

John Moffat says

There are only 80kg of material available and they are using all of it. Therefore there is no slack!

kamran.khan says

Oops. I am sorry. i had 100KG of available material in my mind, i don’t know where it came from. Thank you for your patience to answer some silly questions.