Question: Sensitivity analysis is the response of the optimal solution to changes in inputs (cost, demand, etc.). Compare sensitivity analysis with the concept of shadow price.

Sensitivity analysis is the response of the optimal solution to changes in inputs (cost, demand, etc.). Compare sensitivity analysis with the concept of shadow price. What are the similarities?

The shadow price of a resource used in a given activity falls to zero once it is abundantly available. But you will rightly respond that the value of that resource surely cannot be zero: that if the firm has no use for it, it could be sold. Discuss this apparent contradiction. (Hint: The shadow price only reflects what is in the model.)

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