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A company currently makes two products, X and Y. Both products use material z which is in limited supply, and current production levels are using the entire weekly supply.
Product X uses 4 kg of Z per unit; product Y uses 5 kg of Z per unit. Material Z is costing currently $2 per kg, and the shadow price for material Z has been calculated as $2.70 per kg. The supplier of material Z is prepared to increase the weekly supply by 10 kg.
What is the most per kg that the company should be prepared to pay for the extra material?
A. $0.70
B. $2.70
C. $4.70
D. $2.40
I choose B but it was wrong. Correct answer was C. Please explain this for me as I thought shadow price is the most extra we would be prepared to pay for one extra unit of limited resource. As it is given in question that shadow price for Z is $2.70, shouldn’t answer be B. ($2.70)?Your reply would be greatly appreciated.
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