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University of Ottawa

Question1Bill Coopers statement to use the entire crop for whole tomatoes is incorrect because they are ignoring their other products tomato juice and tomato paste and their demand constraints In addition tomato juice gives a higher profit than whole tomatoes therefore it is not logical to produce only whole tomatoes Even if the company wants to produce only whole tomato they will lose a lot of tomatoes quality B because the quality ratio for the whole tomatoes is 8 and the tomatoes of quality B is only 5Charles Myers reasoning described in the last paragraph is incorrect as it is biased He is only focusing on tomato paste because it offers a higher profit margin as computed in table 1319 Table 1319 however shows the profit margin of each of the three products given that they are all produced If they chose to only produce tomato paste their profit margin would be different you couldnt make a difference between the price of the different quality of tomatoes because you pay the whole 3 000 000 pounds at the same price Its a fixed cost and not a variable cost Similarly to part a Myer is offering a solution but not the optimal solutionQuestion2Step 1X11 pound of A quality tomato in whole tomatoes productX12 pound of B quality tomato in whole tomatoes productX21 pound of A quality tomato in Tomato juice productX22 pound of B quality tomato in Tomato juice productX31 pound of A quality tomato in Tomato paste productX32 pound of B quality tomato in Tomato paste productStep 2The tomatos price is not a variable cost its a fixed cost Each pound of tomato cost you 6 centSo you have to pay 3 000 00006180 000 for the tomatoRevenue from whole tomatoes per case4 1180240407148Revenue from tomato juice per case 45132036085065132Revenue from Tomato paste per case 38054026039077185Revenue from whole tomatoes per pound14818 0082222222Revenue from tomato juice per pound 132200066Revenue from Tomato paste per pound185250074Max Z 082222222X11X120066X21X220074X31X32180 000Step 3
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