Use the given information to determine the price for each cereal that will enable Kellpost to maximize profits. b. Now suppose that Kellpost can increase its monthly production capacity.
Kellpost Cereal Company sells four products: (1)
Special L (a low-calorie, high-nutrition cereal); (2)
Corn Bran (another low-calorie, high-nutrition cereal);
(3) Admiral Smacks (a sugary cereal pitched at the
children’s market); and (4) Honey Pops (another sweet
cereal pitched at the children’s market). Kellpost has
sufficient production capacity to produce a total of
10,000 boxes of cereal per month. For each of the
past 16 months, Kellpost has kept track of the price
and sales of each product. (These data are listed in
the file P07_72.xlsx.) Market executives believe that
Special L and Corn Bran might be substitutes for each
other, as might be Admiral Smacks and Honey Pops.
For example, this means that an increase in the price
of Special L might raise the sales of Corn Bran. The
variable cost of bringing a box of each cereal to mar-
ket is as follows: Special L, $2.00; Corn Bran, $2.20;
Admiral Smacks, $2.30; Honey Pops, $2.40.
a. Use the given information to determine the
price for each cereal that will enable Kellpost to
maximize profits.
b. Now suppose that Kellpost can increase its
monthly production capacity. The cost (per year)
of doing this is $20,000 per 1000 boxes of added
monthly capacity. Can you determine an optimal
capacity level?
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