The constraint at Dreyfus Inc. is an expensive milling machine. The three products listed below use this constrained resource.
Required:
a. Rank the products in order of their current profitability from the most profitable to the least profitable. In other words, rank the products in the order in which they should be emphasized. Show your work!
b. Assume that sufficient constraint time is available to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of the constrained resource?
Definitions:
Returns to Scale
The rate at which output increases as inputs are increased proportionately.
Industry Supply Curve
A graphical representation that shows the relationship between the price of a good and the total output of that good by all firms in the industry.
Demand Curve
A graph showing the relationship between the price of a good and the quantity of that good which consumers are willing to purchase at different prices.
Deadweight Loss
A loss of economic efficiency that occurs when equilibrium for a good or service is not achieved or is not achievable.
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