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HW Set 6 - 2010-FALL-math540

HW Set 6 - 2010-FALL-math540 - Math 540 1 Yvette Holden...

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Math 540 1 Yvette Holden Homework Set 6 Chapter 3 Math 540 Quantitative Methods 1) What does the shadow price reflect in a maximization problem?  Please explain (5 points) The shadow price reflects the maximum dollar amount that a  company is willing to pay for an additional unit of a particular  resource. The value of shadow prices helps management when  making decisions about acquiring additional resources. For  example, if the shadow price is ten dollars for the labor  constraint, an additional hour of labor can be obtained by the  company which would increase their profit by ten dollars. Some  companies prefer to shadow price as an opportunity cost that is  subject to loss by not adding the additional unit. 2) How do the graphical and computer-based methods of           solving LP problems differ? (5 points) The graphical methods of solving LP problems can only be used if  you have 2 decision variables. The graphical methods with 3  decision variables are possible, however, the process is difficult  and those with 4 or more decision variables cannot be graphed at  all.
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