BU275 Lecture Notes - Lecture 5: Profit Margin, Shadow Price, Sensitivity Analysis
Document Summary
Benefits of sensitivity analysis it helps to identify sensitive parameters whose small changes will change the optimal solution it provides insights for managers regarding their decisions when some parameters represent managerial decisions resource required resource available. Sensitivity analysis, rhs of a non-binding constraint optimal solution: (600, 400) Ofv: 5*600 + 12*400 = 7800 optimal solution unchanged: (600, 400) 12*400 = 7800 optimal solution unchanged: (600, 400) 12*400 = 7800 (600, 400) is not feasible anymore! move down the objective function line new optimal solution: (500, 300) new ofv: 5*500 + 12*300. Sensitivity analysis, rhs of a binding constraint optimal solution: (600, 400) = 10066. 6 packing is not binding optimal solution: (733. 3, 533. 3) Binding constraint remains the same change; must re-solve change; new ofv = old ofv + change in rhs*shadow price: rhs value change outside range of feasibility: must re-solve to get the optimal solution and ofv.
