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Dear Tutor,
For critical constraints (zero slack), then gaining additional units of
these scarce resources will allow the optimal solution to be improved
(e.g. higher contribution earned). Similarly if another department wants these resources then it will result in lower contribution- why contibution is lowered if another department requires it?Shadow prices are only valid for a small range before the constraint becomes non-binding or different resources become critical–what does a small range before the constrain becomes non-binding mean here?
the shadow price of a constraint that is not binding at the optimal solution is zero–This means that non-critical constraints will have zero shadow prices as slack exists already?
1. If resources are taken by another department then the constraint for the department we are looking at will be reduced. So they will only be able to make fewer units and so the contribution will reduce.
2. Shadow prices look at the benefit from having more of the limited resource. However there will come a time when the particular resource is no longer limiting and the other constraints limit the production.
3. Yes!
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