A Shadow Price (Or Dual Value) Reflects Which of the Following

question 3

Multiple Choice

A shadow price (or dual value) reflects which of the following in a maximization problem?

• A) the marginal gain in the objective realized by subtracting one unit of a resource
• B) the market price that must be paid to obtain additional resources
• C) the increase in profit that would accompany one added unit of a scarce resource
• D) the reduction in cost that would accompany a one unit decrease in the resource
• E) none of the above

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Definitions:

Net Present Value Method

A method used in capital budgeting to evaluate the profitability of an investment or project by calculating the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Desired Rate of Return

The minimum expected yield by investors for their investment, reflecting the risk level and opportunity cost.

Initial Investment

The amount of money put into a project or investment at the beginning, before any returns are realized.

Inflation

A period when prices in general are rising and the purchasing power of money is declining.