A Graphical Approach to Linear Programming Shadow Prices.
The article presents information on linear programming shadow prices using graphical analysis. Many students have difficulty in interpreting shadow prices as provided in the more complex simplex solution. A graphical approach will allow students to be exposed to shadow prices at an early stage in the discussion of linear programming accounting applications. To approach the idea of shadow prices, the value of additional machine hours and materials should be considered, i.e., the worth of additional machine hours and materials. If the firm had more machine time and/or materials, profits could be increased by utilizing more of each. Therefore, the "economic cost" of a constraint is the additional profit that would be generated if a constraint were relaxed. This cost is sometimes referred to as the "shadow price" of a constraint. A shadow price is simply the economic value of an additional unit of a constraint. The shadow price, as well as the range over which the price is valid, is easily shown using graphical analysis.
- DOI
- 10.2308/tar-4490722
- Volume
- 47 (4)
- Pages
- 819-823
- Language
- en
- Export
- BibTeX
- Sources
- openalex crossref