The shadow price of a slack variable in a linear programming solution that maximises the total contribution margin reflects
A) The amount of excess capacity available for the associated constraint
B) The decrease in contribution margin that occurs if a unit of the associated product is produced
C) The contribution margin returned by the firm's profitable product
D) The increase in contribution margin that would occur if another unit of the constrained resource were available

Question

Quizplus · Accepted Answer

The shadow price of a slack variable represents the increase in the objective function value that occurs with an additional unit of the associated resource. In this case, since we are maximising the total contribution margin, the shadow price of a slack variable will reflect the increase in contribution margin that would occur if another unit of the constrained resource were available. Therefore, option D is the correct answer. Option A is incorrect because excess capacity has no impact on the contribution margin. Option B is incorrect because the shadow price of a slack variable does not reflect the decrease in contribution margin that occurs if a unit of the associated product is produced. Option C is incorrect because the shadow price of a slack variable is not related to the firm's profitable product.

The Shadow Price of a Slack Variable in a Linear