COMMERCE 3QA3 Lecture Notes - Lecture 14: Shadow Price, Sensitivity Analysis

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 3QA3
• Professor: John Miltenburg

Document Summary

Range of feasibility: if you look at the constraints, for every extra marginal profit, the objective function increases for a certain amount. Range of feasibility says that we have a shadow price and it gives you the range in which the shadow price holds for. Range of feasibility for a constraint is the interval over which the rhs value of a constraint can vary while its shadow price remains constant. You add 100 to the rhs and see that the objective function should change by a different (cid:448)alue. (cid:862)its o(cid:374)l(cid:455) (cid:1004). (cid:1010) for a (cid:272)ertai(cid:374) ra(cid:374)ge(cid:863) Decreasing the range of feasibility in this example; new optimal corner is the objective function, the constraint moved, and the horizontal line which is the non-negativity constraint horizontal line is a constraint. Get range of feasibility from sensitivity report. Allowable increase and allowable decrease give you the range of feasibility.