1.The correct answer is C.
The shadow price is the contribution earned from having one extra unit of limited resource available and is also the extra, on top of the existing cost for that limited resource, which a company would be willing to pay to acquire that extra resource.
If the shadow price is $125 per labour hour, it would mean that Cara Co would be willing to pay $125 of overtime premium per hour for the next 2,000 hours. The maximum hourly rate Cara Co would be willing to pay would be ($45 + $125) $170 for an additional 2,000 hours of temporary staff.
Therefore both statements are correct.
2.The correct answer is A.
A slack variable occurs when there are more resources available than are required.
In the graph, the labour line 2S + 3H= 24,000 is well above the feasible region which means that it is not a binding constraint and there are more labour hours than is required. Even if demand increases for both products, labour would still be a slack variable as machine hours are the binding constraint and that is not expected to change. Statement (1) is correct.
If more machine hours became available in month 3, they will be used to make Seebach as the maximum demand of Herdorf
(3,000 units) has been satisfied already. Statement (2) is not correct.
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