Thank you for the comprehensive solutions! I have a question about question 8. When I attempted the test alone, I got the right answer, but my solution was totally different from what I saw in you lecture. Can you please tell me, if I am right or it is just a coincident that I got the right answer. That is my solution: I first worked out what will the company as a whole lose if A shut – A’s profit: sales revenue – 2200u*165=363,000 less: costs: marginal: 2200u*100=220,000+fixed costs 10,000=230,000 Profit therefore=133,000 Savings will occur for B: 2200u*(165-140)=55,000 Total: 55,000-133,000= (78,000) It is a bit longer.

Question 10 – I’m a bit confused as to the shadow price. In the question material Z becomes available at $2 per kg which is the standard cost as stated previously. This amount isn’t used in the calculation of the answer.

If it was obtained at a different price how would this affect the answer?

In my understanding if the price if different you simply will get different shadow price, because you are solving equations for constraints to get the shadow price. In this case you have nothing to do with prices, the calculation is done for you. This shadow price of 2.8 means that if you increase the limited factor by one unit contribution will increase by 2.8 dollars. So this means that for 20kg the most u will pay is 20*2.8. I hope I could explain the way you understand 馃檪

2.80 is the most extra that you will be prepared to pay over and above the current price of 2.00. (the current price is already taken into account when calculating the current contribution).

So to get more of the limited resource you would be prepared to pay up to a maximum of 4.80 (2.80 + 2.00). However this was not asked for – you were simply asked what the extra contribution would be if we got extra at the normal cost of 2.00.

glodan123 says

Hmmn….thank you tutor

emi333 says

In q 7 the lower cost is 36800 not 36880 !

John Moffat says

You are wrong!!

You don’t simply take the lowest cost – that would be stupid. You take the cost associated with the lowest production.

I suggest that you watch the free lecture on the high-low method.

Erika says

Thank you for the comprehensive solutions! I have a question about question 8. When I attempted the test alone, I got the right answer, but my solution was totally different from what I saw in you lecture. Can you please tell me, if I am right or it is just a coincident that I got the right answer. That is my solution:

I first worked out what will the company as a whole lose if A shut – A’s profit:

sales revenue – 2200u*165=363,000

less: costs: marginal: 2200u*100=220,000+fixed costs 10,000=230,000

Profit therefore=133,000

Savings will occur for B: 2200u*(165-140)=55,000

Total: 55,000-133,000= (78,000)

It is a bit longer.

John Moffat says

That’s fine 馃檪

Lilit says

Got your point, thank you 馃檪

Chloe says

This does make a lot more sense now, thanks to you both 馃檪

Chloe says

Question 10 – I’m a bit confused as to the shadow price. In the question material Z becomes available at $2 per kg which is the standard cost as stated previously.

This amount isn’t used in the calculation of the answer.

If it was obtained at a different price how would this affect the answer?

Lilit says

In my understanding if the price if different you simply will get different shadow price, because you are solving equations for constraints to get the shadow price. In this case you have nothing to do with prices, the calculation is done for you. This shadow price of 2.8 means that if you increase the limited factor by one unit contribution will increase by 2.8 dollars. So this means that for 20kg the most u will pay is 20*2.8.

I hope I could explain the way you understand 馃檪

John Moffat says

Not quite Lilit.

2.80 is the most extra that you will be prepared to pay over and above the current price of 2.00. (the current price is already taken into account when calculating the current contribution).

So to get more of the limited resource you would be prepared to pay up to a maximum of 4.80 (2.80 + 2.00). However this was not asked for – you were simply asked what the extra contribution would be if we got extra at the normal cost of 2.00.