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How to calculate shadow price of a constraint of demand of a product, say ‘X’ that it can be sold maximum 10 units because 10 units is the maximum demand.
The optimum production level on graph is the one where the equation of this constraint i.e ” X =< 10″ is intersecting with onother constraint, say material..which is “2X + 4Y =< 80”
Now if we want to know the shadow price of sales demand constraint of X ..how do we calculate it ..like what will be the extra contribution earned per unit of extra ‘X’ sold ?You do it in exactly the same way as I do it for other constraints in the free lecture.
You change the constraint to X = 11, recalculate where the two lines intersect, and calculate the new contribution.
The shadow price is the difference between the new contribution and the previous contribution.
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