Final answer:
The shadow price of 3 in a maximization LP problem means that for every one unit increase in the RHS of the constraint, the optimal value of the objective function increases by 3 dollars. the correct answer is C.
Step-by-step explanation:
The shadow price in a maximization linear programming (LP) problem provides information on how much the objective function value would change if the right-hand side (RHS) of a constraint is changed by one unit, within the range of feasibility. When a shadow price is calculated to be 3 for a ≤ (less than or equal to) constraint, it indicates that if the RHS for that constraint is increased by one unit, the optimal objective function value will increase by 3 dollars. Therefore, the correct answer is:
c. if the right hand side for that constraint is increased by three then the optimal objective function value is increased by 3 dollars
This statement reflects the direct proportionality between the increase in the RHS of the constraint and the increase in the value of the objective function specified by the shadow price.
Key Takeaways. A shadow price is an estimated price for something that is not normally priced or sold in the market. Shadow pricing can provide businesses with a better understanding of the costs and benefits associated with a project.