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Shadow Prices: Tips and Traps for Managers and Instructors

Author

Listed:
  • David S. Rubin

    (Graduate School of Business Administration and Department of Operations Research, University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599)

  • Harvey M. Wagner

    (Graduate School of Business Administration and Department of Operations Research, University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599)

Abstract

Managers who build their own microcomputer linear programming models are apt to misuse the resulting shadow prices and shadow costs. Fallacious interpretations of these values can lead to expensive mistakes, especially unwarranted capital investments. If executives follow a few simple guidelines, however, they can avoid the pitfalls. Instructors of linear programming can assist future managers by teaching how to apply ranging analysis that is available in commercial microcomputer optimization software.

Suggested Citation

  • David S. Rubin & Harvey M. Wagner, 1990. "Shadow Prices: Tips and Traps for Managers and Instructors," Interfaces, INFORMS, vol. 20(4), pages 150-157, August.
    • Handle: RePEc:inm:orinte:v:20:y:1990:i:4:p:150-157
    DOI: 10.1287/inte.20.4.150
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    Cited by:

    1. Murthy Mudrageda & Frederic H. Murphy, 2008. "OR PRACTICE---An Economic Equilibrium Model of the Market for Marine Transportation Services in Petroleum Products," Operations Research, INFORMS, vol. 56(2), pages 278-285, April.
    2. Saurabh Chandra & Amit Kumar Vatsa, 2021. "Case Article—Coastal Shipping for Automobile Distribution," INFORMS Transactions on Education, INFORMS, vol. 22(1), pages 28-34, September.
    3. Koltai, Tamás & Tatay, Viola, 2011. "A practical approach to sensitivity analysis in linear programming under degeneracy for management decision making," International Journal of Production Economics, Elsevier, vol. 131(1), pages 392-398, May.
    4. Jansen, B. & de Jong, J. J. & Roos, C. & Terlaky, T., 1997. "Sensitivity analysis in linear programming: just be careful!," European Journal of Operational Research, Elsevier, vol. 101(1), pages 15-28, August.
    5. Calvin Sonntag & Thomas A. Grossman, 1999. "End-User Modeling Improves R&D Management at AgrEvo Canada, Inc," Interfaces, INFORMS, vol. 29(5), pages 132-142, October.
    6. Sundaravalli Narayanaswami & Ravichandran Narasimhan, 2017. "Case Article—Optimal Movement Plan of Rice in the State of Andhra Pradesh," INFORMS Transactions on Education, INFORMS, vol. 18(1), pages 37-40, September.
    7. Adlakha, Veena & Kowalski, Krzysztof, 1998. "A quick sufficient solution to the More-for-Less paradox in the transportation problem," Omega, Elsevier, vol. 26(4), pages 541-547, August.

    More about this item

    Keywords

    programming: linear; tutorial;

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