A manufacturer of breakfast cereals has the opportunity to purchase barley at $3.00 a bushel for 10,000 bushels,if it also buys 5000 bushels of wheat at $16.00 per bushel.However,the manufacturer does not use any barley in its products,and currently needs 20,000 bushels of wheat.If the current market price of barley is $3.80 per bushel,and wheat is $15.80 per bushel,should this opportunity be taken,and why?

Question

Quizplus · Accepted Answer

The opportunity should be taken because the value of the opportunity is positive. The company can purchase barley below market price and sell it at a profit, while also buying wheat at a slightly higher price but still meeting part of its wheat requirement.

A Manufacturer of Breakfast Cereals Has the Opportunity to Purchase