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Shadow Pricing

Shadow Pricing Definition

Shadow Pricing is the assignment of value to a non-marketed product. As there is no market value, an educated guess has to be made. This method is often used in the cost-benefit analysis of new projects. It describes the maximum price the management is willing to pay for an extra unit of certain limited goods. For example, if a factory works at its 40-hour limit, the shadow price is the maximum price the manager is ready to pay for operating it for an additional hour.








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