Question

Discuss how a manager uses the range of optimality, shadow price, range of feasibility, and reduced costs in making decisions

Answer 1

Range of optimality:-

The range of optimality for each coefficient provides the range of values over which the current solution will remain optimal. Managers should focus on those objective coefficients that have a narrow range of optimality and coefficients near the endpoints of the range.

Shadow price:-

The shadow prices possess the following uses for a manager:

1. In Project Evaluation:

Shadow prices are a convenient tool for evaluating investment projects in different sectors of the economy. They are used for evaluating the effects of a project on the national income which are also known as external effects.

2. In Public Policy:

The success for development planning depends upon the correct operation of public policy. Shadow prices are intrinsic prices on whose correct determination depends the success of a plan to a considerable extent.

3. In Programming:

Shadow prices have much importance in programming. In the context of developing countries, programming means the optimum use of investment whereby there is no difficulty in the production process.