By definition, a shadow price is the amount by which contribution will increase if an extra kg of material becomes available.

In this question, the shadow price is $2.80 per unit and therefore if 20 kgs of additional material Z becomes available, the increase in contribution would be $56 (20 x $2.80). The answer is therefore B.

In the first distractor A, the cost of the material (20kg x $2) has also been added to the $56.

This is because a common mistake made is to add the cost of the material in too.

Similarly, in distractor C, the $40 has been deducted from the $56 leaving a figure of $16.

This is because candidates often fail to realise that the shadow price is the amount over and above the normal cost that one would be prepared to pay for an extra unit of scarce material if it becomes available.

Therefore, this would lead candidates to think that contribution would only increase by $0.80 ($2.80-$2) for each extra kg of material Z that becomes available resulting in a total increase in contribution of only $16.

The final distractor, D, ‘no change’ is there to identify candidates who don’t understand shadow prices at all.