The Shadow Price in a Linear Programming Model Is

question 85

Multiple Choice

The shadow price in a linear programming model is:

• A) Interesting from a mathematical or economic theory standpoint, but not generally useful from an accounting standpoint.
• B) Equal to the current market price for an additional unit of the related resource.
• C) The maximum price a rational decision-maker would be willing to pay for an additional unit of the scarce resource.
• D) Greater than the market price for the related resource.
• E) Zero for a binding constraint.

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Definitions:

Compounded

The process of calculating interest on both the initial principal and the accumulated interest from previous periods.

Principal

The original amount of money on which interest is calculated.

Composition

The act of combining two functions by applying one function to the result of another.

Function

A mathematical relation in which each element of a set of inputs is associated with exactly one element of a set of outputs.