lecture 10

Question 1

What is a shadow price

Answer 1

The increase in contribution (and therefore profit) that would be created from having one extra unit of a limiting resource or
The decrease in contribution (and therefore profit) that would be lost from losing a unit of a limiting resource

Question 2

Assumptions and limitations of linear programming

Answer 2

Fixed costs remain the same 
The unit variable cost is constant
The estimates are known with certainty
Units of output are divisible
In practice it may be difficult to determine which resources are likely to be in short supply, how much will be available, and whether all possible uses have been identified.