Answer :
Final answer:
Without specific constraints, Sierra Wood Products should produce more of the product with the highest profit margin considering opportunity cost. Optimal production is achieved where total revenue exceeds total cost by the largest amount, applying this principle will aid in maximizing profit. The correct answer is(d).
Explanation:
To maximize profit, Sierra Wood Products needs to consider the limitations of next week's production and focus on the product with the highest profit margin after considering those constraints. However, the information provided does not specify what the production limitations are. If the limitations are not related to materials or resources specific to one product, the optimal strategy would be to produce more of the product with the higher profit margin. Therefore, option d) Produce more of the product with the highest profit margin seems to be the most effective approach to maximize profit. However, the considerations of opportunity cost and constraints like production capacity or resource availability can significantly affect this decision.
Opportunity cost must also be accounted for, as illustrated by the snowboard and ski production example. Sierra Wood Products should transfer resources from producing the product with a higher opportunity cost to the one with a lower opportunity cost to maximize efficiency and profit. The provided example emphasizes choosing the plant with the lowest opportunity cost when shifting production to snowboards as the most sensible decision.
In conclusion, without specific constraints quantities, Sierra's best approach relies on profit margins and opportunity costs. Calculating output that maximizes profit involves finding at what quantity total revenue exceeds total cost by the largest amount. This principle can be applied to the current scenario for Sierra Wood Products.
