Dual Price Function vs. Dual Prices for the Capital Budgeting Problem

The Capital Budgeting model is normally formulated as a 0–1 integer linear programming problem (ILP), but solved as an ordinary LP. The solution is then adapted by inspection. The main reasons for using this approach are that it is easier to solve an LP than an ILP, and that the associated dual variables can be interpretated as shadow prices.In this paper the Capital Budgeting model is solved as an 0–1 ILP, and we get a dual price function rather than dual prices. The relationship between the dual price function and the recomputed dual price, as suggested by Gomory and Baumol, is investigated.