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Dear Sir,
I am not quite sure, how the profits were calculated. 300×3 and 500×5. Then you added them up. I understood for the upper row. but then for 700 contract and demand row I did not. And why demand and supply are added up in this way?
Thanks.
We are not adding supply and demand!!
The contract is with a customer, and so depending on what number we sign the contract for we will sell that many units. Every unit that we sell to this contact customer will give us a profit of $9 – $6 = $3.
In addition we will sell whatever we can to ‘normal’ customers. Every unit we well to these customers gives a profit of $11 – $6 = $5. However, the number of units we can sell to these customers is limited to however many they actually demand, and to the fact that we can only produce (and therefore sell) 1,200 units in total (and we have to supply the contract customer).
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