Shadow Prices: Tips and Traps for Managers and Instructors

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.