EMÜ 221

Introduction to Optimization and

Modeling

2016-2017 Fall
Week 4
Shadow Prices

The shadow price (SP) of a constraint of an LP is the

amount by which the optimal z-value changes per unit
increase in the RHS of the constraint. This definition gives
a rate information and is valid so long as the current basis
stays optimal.
 SP signs (as also seen in EXCEL and GAMS)
Amount of change in the objective function per unit increase in
the RHS of the constraint

For maximization problems

•  type constraints always have nonpositive SPs.
•  type constraints always have nonnegative SPs.
• Equality constraints may have a positive, a
negative, or a zero SP.
 SP signs (as also seen in EXCEL and GAMS)
Amount of change in the objective function per unit increase in
the RHS of the constraint

For minimization problems

•  type constraints always have nonnegative SPs.
•  type constraints always have nonpositive SPs.
• Equality constraints may have a positive, a
negative, or a zero SP.
 Slack variable

Amount of resource unused in the ≤ constraint

 Excess (surplus) variable

Amount by which the RHS of ≥ constraint is exceeded.

 Slack/Excess Variables
Any constraint whose slack or excess variable > 0 will have SP=0.
Similarly, any constraint with a nonzero shadow price must be
binding (have slack or excess equal to zero).

For constraints with positive slack or excess:

Type of Allowable Increase Allowable Decrease

Constraint for RHS* for RHS*
≤ ∞ = value of slack
≥ = value of excess ∞

*For which SP stays 0 (or equivalently current solution stays optimal)

Reduced Cost (in EXCEL and GAMS)

The change in the (optimal) objective function value

with respect to an increase of one unit in the value of a
variable that is nonbasic (have 0 value) at optimality
• In maximization problems, reduced costs are nonpositive

• In minimization problems, reduced costs are nonnegative

Reduced costs give information about the change

required in objective function coefficients of nonbasic
variables for them to become basic and enter the
basis.
Excel Solver Examples
Giapetto Problem

x1 = number of soldiers produced each week

x2 = number of trains produced each week

Max z = 3x1 + 2x2 (objective function)

subject to (s.t.)
2 x1 + x2 ≤ 100 (finishing constraint)
x1 + x2 ≤ 80 (carpentry constraint)
x1 ≤ 40 (constraint on demand for soldiers)
x1 ≥0 (sign restriction)
x2 ≥ 0 (sign restriction)
Production Planning Problem
Hospital Service Mix Problem