The Valor Company Manufactures Two Products: L and M Total Demand for Product L Is 2,000 Units and for Costs

question 22

Essay

The Valor Company manufactures two products: L and M. The costs and revenues are as follows:
$$\begin{array} { l c c } & \text { Product L } & \text { Product M } \\\text { Sales price } & \$ 150 & \$ 112 \\\text { Variable cost per unit } & 90 & 68 \\\text { Machine hours per unit } & 15 & 10\end{array}$$
Total demand for Product L is 2,000 units and for Product M is 1,000 units. Machine time is a scarce resource. During the year, 36,000 machine hours are available.
Required:
a. How many units of Products L and M should Valor produce?

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Definitions:

Price Elasticity

An indicator of how the demand or supply quantity of a product reacts to price fluctuations.

Raise Profits

Strategies or actions taken by businesses to increase their net earnings or margins.

Two-part Tariff

A pricing strategy that involves charging an initial fee (fixed charge) plus a per-unit price for consumption beyond a certain threshold.

Marginal Cost

The boost in total expenditure linked with producing an extra unit of a good or service.