BPP Question BANK Question 116

Before I look into it…..What is the question on? Is it from the most up to date exam kit? Thanks

Yes from the latest Question Bank

The question is on shadow pricing For maximisation problems like this one the constraints can often be thought of as restrictions on the amount of resources available, and the objective can be thought of as profit. Then the shadow price associated with a particular constraint tells you how much the optimal value of the objective would increase per unit increase in the amount of resources available. In other words, the shadow price associated with a resource tells you how much more profit you would get by increasing the amount of that resource by one unit. (So "How much you would be willing to pay for an additional resource" is a good way of thinking about the shadow price.) Do you need me to go through the question? If so….see below

Thus labour will increase from 60,000 to 60,001 So how much extra contribution does this give You calculate what you get if labour is restricted to 60,000 and again 60,001 From the original 60,000 the contribution was 95,000 For 60,001 it come to 95,001.50 So this means that it gives and extra 1.50, the shadow price is 1.50 The extra will cease to apply once the the max hours are reached So the original hours are 60,000 the max is 10,000 * 5 + 12,000 * 4 = 98,000 So that means 1.50 apples to the extra 38,000