Changes to the RHS

• If RHS of nonredundant constraint changes, size of

feasible region changes.
• If size of region increases, optimal objective
function value remains same or improves.
• If size of region decreases, optimal objective
function value remains same or worsens.
• Relationship expressed as Shadow Price.
• Shadow Price is the change in optimal objective
function value for one unit increase in RHS.
based on
© 2013 Pearson Education, Inc. publishing as Prentice Hall 4-1
 Sensitivity Analysis

based on
© 2013 Pearson Education, Inc. publishing as Prentice Hall 4-2
 Changes to the RHS
• Allowable increase/decrease is the range of
RHS values where shadow price is valid.
• Shadow price for nonbinding constraints = 0
• For a nonbinding constraint allowable
increase/decrease is equal to slack/surplus and
the other increase/decrease is infinity.
• Changes in RHS value of a binding constraint
causes the optimal corner coordinates to
change. From sensitivity analysis you cannot
know the new coordinates.

based on
© 2013 Pearson Education, Inc. publishing as Prentice Hall 4-3
 Changes to the RHS
• Correct the shadow price for any premium that
is paid.

e.g. Let’s assume in a maximization problem

Shadow price=$3 Allowable inc. = 20

If we increase RHS by 10 units, then

OF value will improve by $3 *10 = $30

based on
© 2013 Pearson Education, Inc. publishing as Prentice Hall 4-4
 Changes to the RHS
• Instead if there was a premium involved
e.g. Let’s assume in a maximization problem
Shadow price= $3 Allowable inc. = 20

If we can increase RHS by 10 only by paying an

additional cost of $1 for each unit of increment, then

the improvement will be ($3 - $1)*10 = $20

adjusted shadow price

based on
© 2013 Pearson Education, Inc. publishing as Prentice Hall 4-5
 Changes to the OFC

• Allowable increase / Allowable

decrease

is the range for OFCs where

the current corner and its coordinates
are still optimal.

However, objective function and its

value will change.
based on
© 2013 Pearson Education, Inc. publishing as Prentice Hall 4-6
 Changes to the OFC
• An OFC represents a marginal
contribution from one of the DVs to the
overall objective

• max 7T + 5C
$5 will add to the
overall profit when 1
$7 will add to the unit of C is produced
overall profit when 1
unit of T is produced

based on
© 2013 Pearson Education, Inc. publishing as Prentice Hall 4-7
 Changes to the OFC
• There is an opportunity cost of production
3T + 4C < 2400

Producing 1 unit of T Producing 1 unit of T

uses 3 hours from the steals resource
reserve of 2400 hours of capacity and hinders
carpentry time with production of C
which C is also produced

• This marginal cost on the overall objective is

reflected through shadow price
based on
© 2013 Pearson Education, Inc. publishing as Prentice Hall 4-8
 Reduced Cost
• Difference between the marginal contribution of a
variable and the marginal worth of the resources it
uses

= marginal contribution – marginal cost of resources

= OFC – ∑(shadow price * resources)

based on
© 2013 Pearson Education, Inc. publishing as Prentice Hall 4-9
 Sensitivity Report

Screenshot 4.1D

based on
© 2013 Pearson Education, Inc. publishing as Prentice Hall 4-10
 Reduced Cost
• For a decision variable that has a positive value
in the optimal solution (i.e. part of the optimal
soln)

Reduced cost = 0

• For a decision variable that does not exist in the

optimal solution

Reduced cost ≠ 0
based on
© 2013 Pearson Education, Inc. publishing as Prentice Hall 4-11
 Reduced Cost
• Penalty on the OF for forcing a non-
existent variable to enter the optimal
solution.
i.e.
• A non-existent variable in the optimal
solution must contribute an additional
amount (equal to the reduced cost) to the
OFC, to enter the solution.

based on
© 2013 Pearson Education, Inc. publishing as Prentice Hall 4-12
 Reduced Cost
• For a variable that is non-existent in the optimal
solution (i.e. a variable that has a non-zero
reduced cost.)
• One of allowable increase/decrease is infinity
• The other one is equal to the reduced cost
• If one of allowable increase/decrease is equal
to “0” for a variable, alternate optima exist.

based on
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© 2013 Pearson Education, Inc. publishing as Prentice Hall 4-13
 Sensitivity Analysis
• Important !!!
• For either change in RHS or OFC
• Beyond the range of allowable
increase/decrease sensitivity analysis and
the current results are not valid.
• Changes beyond allowable
increase/decrease require the whole problem
to be resolved.
• Therefore, first check whether the change is
in the allowable range or not.
based on
© 2013 Pearson Education, Inc. publishing as Prentice Hall 4-14