MCQs

1. The shadow price is (by definition) the most extra we would be prepared to pay for one extra unit of a limited resource (above its 'normal' price). Therefore the most per kg is $3 + $3.70 = $6.70.

2. The 1500 kg in inventory is valued at the opportunity cost of $9 per kg. The extra 500 kg has to be purchased and is therefore at $10 per kg.

3. The target cost is 100/120 x $600 = $500 per unit. The expected cost is $520 per unit. Therefore the cost gap = 520 - 500 = $20. (Full explanations of all of the above are in our free lectures. Also, the mock exam has been re-uploaded and now there are working provided for all of the questions :-) )