Shadow Prices — OpenTuition Forums

Ggutsychyk15y ago

there r around 4 to 5 constraints in a question
for instance
labour - 4s + 2b = 26000

(i)
material 5s + 2b = 30000

(ii)
s= 6000----(iii)
etc etc
calculate shadow price for labour

so we ll take 2 equations, labour for sure
which will be the second one?
coz answer as to contribution is different on using both 2nd and 3rd equations
so value of s and b by using i and ii will be different and by using i and iii will be different

please advise

Vvedavyas15y ago#1

Why do you need a second equation. For Shadow pricing you will write the
Labour equation as : 4s + 2b = 26001
Now you have the value of s, just substitute it in the above equation. 4x6000 +2b =26001
Now you will get the value of b, Substitute this value of b and s in the objective function/maximize contribution equation, and you will get a new contribution,
Then all you have to do is compare this contribution with the contribution at the optimum level of prodution, the difference will be The Shadow Price for 1 extra unit of labour.

Aamrita15y ago#2

or u could calculate the shadow price by simultaneous equations..
where 4s+2b=26001
5s+2b= 30000...
solve the equations to get s and b..
then get the contribution of the above units.. and compare it with the contribution of the previous units, that will give u your shadow price.