A firm produces products X, Y and Z with contribution margins of $4, $5 and $10 respectively. The firm has only 5000 machine hours available for a particular period. Machine hours required for each of the products are 1, 1 and 5 hours respectively. Demand for the products is 1000 for X, 3000 for Y and 2000 for Z. How many units of each product will the firm produce?

Question

Quizplus · Accepted Answer

The firm will aim to maximize its contribution margin within the constraint of 5000 machine hours. Producing 1000 units of X requires 1000 hours, 3000 units of Y requires 3000 hours, totaling 4000 hours. This leaves 1000 hours, enough for 200 units of Z (since each unit of Z requires 5 hours). This combination fully utilizes the available machine hours while respecting product demand limits.

A Firm Produces Products X, Y and Z with Contribution