Reference no: EM131180769

Consider an investment problem where X is the number of shares of a pharmaceutical stock that are purchased and Y is the number of shares of a bank stock that are purchased. The LP has several constraints, but one is a budget constraint that is of the form: 25X + 50Y = 10,000.  Thus, a share of X costs $25 and a share of Y costs $50 and a sum of $10,000 is available for investment.  Consider the following information from the LP solution:

Optimal value of Objective Function:   $12,500
Optimal value of Decision Variables:   X = 128.5; Y= 135.75
Allowed increase in the RHS of Budget Constraint =   $1 E + 30
Allowed decrease in the RHS of Budget Constraint =   $2,750
Shadow Price of Budget Constraint=   $2.50

Answer the following questions considering the information above:

1. If you discover that you have an additional $2000 to add to the budget constraint, what will be the new value of the Objective Function? ($5,000, $7500, $10000, $12500, $15000, or $17500)
2. If you decrease the RHS of the budget constraint to $9000, what will be the new value of the Objective Function? ($5,000, $7500, $10000, $12500, $15000, or $17500)
3. If the RHS of the Budget Constraint is changed to $7000, the Shadow Price will change to some value other than $2.50. (True or False?)