shadow priees We find Ralph studying cost, and how cost depends on the way a choice problem is framed. Ralph now produces two products. Let x and y, respeetively, denote the quantities of the two products that are produced and sold. Any nonnegative quantities satisfying the following constraints can be produced:

x + y :s 400; and x + 2y:s 500.

Ralph estimates the contribution margin to be $10 per unit for the first produet and

$12 per unit for the second. This is based on respective selling prices of 40 and 42 per unit, along with respective variable costs of 30 and 30 per unit.

a] Determine an optimal solution.

b] In what sense are the shadow prices on the two constraints opportunity costs?

AppendixLO1