Talk:Shadow price

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This article is confusing. I wanted to know what role the lagrange multiplier ('lambda') plays in the utility-maximizing rule for AP Econ, went to the lagrange wiki entry, then went down to the 'application in economics' subsection, and finally came to this page about shadow prices.

Someone please revise or append a more digestible explanation, please. --Karch 06:11, 25 October 2006 (UTC)

The level of explanation is appropriate for a full understanding of the shadow price. Remember that shadow price is just a story Economists give for the value the langrange multiplier takes on at the optimal solution. The role the lagrange mulitpier plays in the utility-maximizing rule has nothing to do with it's numerical value at the optimal solution, which is what this wiki-entry treats. Sounds like someone needs to develop the lagrange entry further. — Preceding unsigned comment added by Jben78wi (talkcontribs) 19:50, 30 January 2007

How is the LaGrange multiplier determined? — Preceding unsigned comment added by (talkcontribs) 22:29, 5 June 2007

Linear programming[edit]

I was looking for help with shadow prices in linear programming problems, but wikipedia didn't help. Maybe we can use the great explanation on this forum thread: —Preceding unsigned comment added by (talk) 15:11, 29 May 2010 (UTC)

shadow pricing — Preceding unsigned comment added by (talk) 22:34, 24 June 2011 (UTC)

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Wikipedia is an encyclopedia, not an economics textbook. This article needs to be simplified. A little history of the theory would also be useful, including its application in the Soviet Union. Nomenklatura44 (talk) 05:52, 6 October 2011 (UTC)


This article conflates price with cost. It thus provides an incorrect definition for shadow price.

The article says "Shadow" price "refers to values assigned to currently unknowable or difficult to calculate costs. ... For example, consider a firm that already has a factory full of equipment and staff. They might estimate the shadow price for a few more units of production as simply the cost of the overtime." Wrong. The cost of additional incremental overtime is cost, not "price." Adding the word "shadow" does not change a cost to a price.

The article similarly says, "shadow price can be thought of as the cost of decisions made at the margin without consideration for the total cost. For instance, consider a trip in your car. You might estimate the shadow price of that trip by including the cost of gas; but you are unlikely to include the wear on the tires." Wrong again. The incremental cost of gas is a cost, not the price of the trip.

The article similarly says, "In a business application, a shadow price is the maximum price that management is willing to pay for an extra unit of a given limited resource." Wrong again. The "the maximum price that management is willing to pay for an extra unit" is the equilibrium incremental cost. Cost, not price. Because management is buying this resource, not selling it. --> — Preceding unsigned comment added by (talk) 18:37, 21 August 2017 (UTC)

Interesting comments, I concur with the observation about conflating price and cost ...thanks Risk Engineer (talk) 15:14, 28 December 2018 (UTC)