Shadow price: Difference between revisions

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Revision as of 05:00, 30 September 2005

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The value of the shadow price can provide decision makers powerful insight into problems. For instance if you have a constraint that limits the amount of labor available to 40 hours per week, the shadow price will tell you how much you would be willing to pay for an additional hour of labor. If your shadow price is $10 for the labor constraint, for instance, you should pay no more than $10 an hour for additional labor. Labor costs of less than $10/hour will increase the objective value; labor costs of more than $10/hour will decrease the objective value. Labor costs of exactly $10 will cause the objective function value to remain the same.

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==See also==

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*[[Linear programming]]

*[[Duality (mathematics)]]

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[[Category:Optimization]]