ACCA PM · Chapter 6 · Question 6 of 10
In linear programming, what does the shadow price of a scarce resource represent?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) The increase in total contribution if one extra unit of the resource were available, which is the maximum premium worth paying above its normal cost
Explanation
The shadow price (dual price) is the change in the objective function from one additional unit of a binding constraint. It is the most a business should pay over and above the normal cost for an extra unit. The unused amount of a resource is called slack.
More Limiting factors and linear programming MCQs
- Q8When solving a two-product linear programming problem graphically, how is the optimal point identified?
- Q9Omega Co makes products X and Y. Contribution is $40 per unit of X and $50 per unit of Y. Constraints are: Labour: 2x + 4y <= 4,000 hours…
- Q10Psi Co makes products X and Y. Each unit of X uses 2 kg of material M and each unit of Y uses 5 kg. Only 10,000 kg of material M are…
- Q1Tau Co makes three products. Labour is limited to 12,000 hours next period. Product X: contribution $24 per unit, 3 labour hours per unit…
- Q2Tau Co makes three products. Labour is limited to 12,000 hours next period. Product X: contribution $24 per unit, 3 labour hours per unit…