Opportunities for Making Production-Related Decisions on the basis of Shadow Prices

Abstract

This article describes how shadow prices can be used as active constraints (in this case constraints of mine production capacity) to address and support production-related decision-making. This is an algorithm from a post-optimal analysis developed by the author as part of a method for rationalising production decisions for a formal group (PGG, a company) of hard coal mines. Opportunities for using shadow prices are presented using examples of actual mines. The developed algorithm provides a quick way of obtaining information, with no need to solve the problem again, about possible gains or losses resulting from an increase or a decrease in a selected production limit, to determine how changes to such constraints will affect the profits and production and sales structures for specific coal sizes.