The Lagrange multipliers can be used to
A) estimate the impact of a small change in the RHS of the constraints on the objective function
B) estimate the impact of an arbitrary change in the RHS of the constraints on the objective function
C) estimate the impact of a small change in the RHS of the constraints on the shadow prices
D) estimate the impact of a large change in the RHS of the constraints on the shadow prices

Question

Quizplus · Accepted Answer

Lagrange multipliers can give us an estimate of the impact of a small change in the RHS (right-hand side) of the constraints on the objective function. This is because the Lagrange multipliers are the sensitivities of the objective function to changes in the constraints. However, they may not be as useful for larger changes in the RHS, as the linearization assumption may not hold. They also do not directly give us information about shadow prices.

The Lagrange Multipliers Can Be Used to