Captain Stubing runs the LP model associated with the scenario and reads the following about the constraints in the Excel sensitivity report
Gopher is unable to provide an interpretation, but you volunteer to provide insight on the Restaurant and Excursions portion of the sensitivity report.
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$E$10 Bar/Food 0 1560 0 5 16
$E$11 Budget 150000 3.4 150000 1E+30 96200
$E$6 Excursions 24.24 0 5 19.24 1E+30
$E$7 Restaurant 12 -1660 12 16 5
Answer: The Restaurant constraint has a shadow price of -$1,660 which means that for every one more cuisine variety required, the profit will drop by $1,660. If we required two more, profit would drop by $3320, and so on, up to requiring 16 additional meal types. Beyond that, the $1,660 cost would not be a correct estimate. For each type of cuisine dropped, from 12 to 11, the same figure hold, up to a reduction of five types of cuisine. Excursions has no shadow price – it is not a binding constraint, so we can actually reduce the number of excursions quite a bit, but 19.24 down to the required minimum of 5 per day.
You might also like to view...
Which of the following is not included in the highest authoritative level of GAAP?
a. FASB Statements b. AICPA Statements of Position c. FASB Staff Positions d. Accounting Principles Board (APB) Opinions
MagNet is a U.S. company based in Utah. It is negotiating to sell $4 million worth of computer goods to a French company, Legran. MagNet's attorney suggests that payment be by a letter of credit. What is a letter of credit and why does MagNet's attorney recommend payment by letter of credit?
Under federal law, the calorie content of the food on a menu must be posted by Organic Mix, LLC, if Organic Mix is
A. a restaurant chain with twenty or more locations. B. a food distributor with twenty or more customers. C. a food processor with twenty or more products. D. a food producer with twenty or more acres.
Which of the following statements is true of U.S. firms, financial institutions, and banking organizations??
A. ?U.S. firms had much higher growth rates than their European counterparts. B. ?U.S. firms follow less conservative working capital policies than European firms. C. ?Corporations in the U.S. use significantly greater proportions of long-term financing than European firms. D. ?U.S. financial institutions traditionally have been subject to less restrictions and regulations than banking organizations in other countries. E. ?U.S. banking organizations often have very close relationships with the firms that borrow from them, which generally results in a greater willingness to provide more short-term, risky debt than we observe in European banks.