How does a change in resource availability impact the shadow price?
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A change in resource availability inversely affects shadow price, increasing with scarcity (decreased availability) and decreasing with abundance (increased availability).
A change in resource availability directly impacts the shadow price as follows:
- Increase in Resource Availability: If a resource becomes more available, the shadow price may decrease or become zero if the constraint is no longer binding. This suggests that the resource is less valuable.
- Decrease in Resource Availability: If a resource is restricted, the shadow price may increase, indicating greater value for that resource. This reflects the increased importance of the constraint on the objective function.
Overall, shadow prices adjust based on how resource availability affects the optimal solution and the binding nature of constraints.