Albert is the CEO of a company that manufactures two types of wizzers (standard and
super) using two types of machines (STD-M and SUP-M).
The standard wizzers are
produced on the STD-M machines and then either sold to external customers or
processed further on the SUP-M machines to obtain the super wizzers.
Albert has excess capacity on both types of machines, but he has a limited number of
In fact, he could use all of his skilled workers on the STD-M machines
and produce only standard wizzers, although he has usually split his work force and
processed some of the standard wizzers to produce what ever number of super wizzers
he can sell.
The standard wizzers are sold in a competitive market that will absorb his entire output
at a price of $1,000 per unit.
The price of super wizzers has been about $1,800 per unit
for several years with a demand for about 4,000 units.
However, while he can continue
to sell 4,000 units this coming year, he can do so if he reduces the price to $1,400 per
The following is the reported income for last year: