COMMERCE 3QA3 Lecture Notes - Lecture 12: Shadow Price, Sensitivity Analysis, Carpentry

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

Document Summary

Sensitivity analysis: formulate lp problem from english to constraints, solve lp model by finding optimal solution, sensitivity analysis for constraints and objective function. E(cid:374)siti(cid:448)ity a(cid:374)alysis are the (cid:862)(cid:449)hat ifs(cid:863) if (cid:449)e (cid:272)ha(cid:374)ge a (cid:448)alue or (cid:449)hate(cid:448)er. In an lp value, the objective function coefficient and the constraint right hand sides may change. E(cid:374)siti(cid:448)ity a(cid:374)alyse tells you if your solutio(cid:374) is this, this , a(cid:374)d this, the(cid:374) that"s fi(cid:374)e (cid:271)ut if its more than this it will change. The optimal solution must be done before sensitivity analysis. Compare left hand side to right hand side and check slack by the shadow price. Shadow price: are not good forever, they are only good for the range of feasibility. The objective fu(cid:374)(cid:272)tio(cid:374)"s (cid:272)oeffi(cid:272)ie(cid:374)ts size gi(cid:448)es us the ra(cid:374)ge of opti(cid:373)ality. Binding means that lhs =rhs . it means that s=0. Non-binding (s>0) if lhs and rhs are not equal.