The Accounting Review Vol. 47 No. 2 1972
A Note on the Definition of Cost Coefficients in a Linear Programming Model.
Abstract
This article presents information on cost coefficients in a linear programming model. The discussion indicates that opportunity cost is not necessarily the appropriate definition. A product mix linear programming (LP) model is used to illustrate ideas. In considering what definition of input prices is relevant in LP, other researchers have concluded that input quantities should be prices using an opportunity cost per unit of input, which is the highest return foregone because the input is used in the system modeled. Researcher H.G. Jensen assumes that the best alternative foregone from which these opportunity costs are derived is either the alternative of not acquiring the inputs or the sacrificed alternative of selling the inputs if they are on hand. If opportunity costs per unit are used to price inputs on hand, then the optimal solution indicates the excess profit obtained by using these inputs in the system modeled over what could be obtained by immediately liquidating them. This profit measure, therefore, reflects a short-run view of the firm.
- DOI
- 10.2308/tar-4482699
- Volume
- 47
- Issue
- 2
- Pages
- 346-350
- Language
- en
- Sources
- openalex crossref