Download I need a paper on Maximizing Profits and Minimizing Losses on the

I need a paper on Maximizing Profits and Minimizing Losses on the following: Consider a
supplier of agricultural equipment who is deciding how much of two products should be
produced by his firm.
The maximization of profit is possible when there is a possibility of selling more than one
product. The primary factor of decision making is the contribution margin, which is the
difference between selling price per unit and variable cost per unit. The product which has
higher contribution margin per unit is preferred to be sold to maximize profit, if there is no
limiting factor, but if there is limiting factor then the contribution margin per limiting factor of
the product is the deciding factor.
You determine what the two products are.
Now suppose that the company is producing tractor and tube well and following is the data.
Per unit
Selling Price
Variable
Cost
Machine
Hours
CM per unit
CM per hour
Tractor
$
8,000
Tube well
$
1,000
$
5,000
$
$
20
3,000
$ 150
600
2
$
400
$ 200
Now create a report that includes a discussion and analysis regarding how such a supplier makes
such a determination in order to maximize the firm’s profits. Include in your response: A
discussion of exactly what costs are associated with profit maximization.
If there is no limiting factor such as demand then the company may produce as much as of
tractors to generate profit. For example, if company produces 5000 tractors in a year then the
contribution margin will be 5000*3000 = $15000000 and if the same quantity of tube well is
produced the profit will be 5000*400 = $200000. Therefore producing more of tractor will be
maximization of profit for the company. In this decision all variable cost related to a product is
relevant while the fixed cost will have not impact on the decision. Regardless of which product
is produced, the company will have to pay the same fixed cost in any case.
A discussion of the concept of “opportunity cost.”
Opportunity cost is the sacrifice of benefit for the selection next best alternative. If company
decides to sell tractor, then the loss of contribution of tube well will be the opportunity cost. In
this case the opportunity cost for tractor is $400 per unit contribution margin of tube well.
A discussion of the alternative production opportunities.
Now if company does not want to loss the sale of tube well also, then the company may go for
outsourcing the tube well and produce all tractors itself. The outsourcing will be beneficial for
the company if the cost of purchase exceeds the selling price. In addition to quantitative factors,
the company also has to consider some of the qualitative factors, such as, the timely supply by
outsource supplier and the quality of the product by outsource supplier.
A discussion of the various constraints which firms face in maximizing their economic profit.
In this case we have assumed that there are no constraints or limiting factor therefore the
deciding factor is the contribution margin per unit, but company may face certain bottlenecks
such as demand of the product, the scarcity of labor hours, machine hours, material and cash. If
suppose that the company has capacity of 100000 machine hours, the company may produce all
tractor 100000/20 = 5000 tractors, as assumed above. But if the demand in the market is only for
4000 tractors, then company can not use all machine hours to produce tractors, the company will
produce 4000 tractors which will consume 80000 machine hours, the remaining 20000 hours
will be spent producing 20000/2 = 10000 tube wells.