Question

Consider a firm with a plant in the U.S. and Canada. A​ U.S.-based shipper charges​ $1.00 per unit to ship between the two countries. Assume no taxes and consider the following data.

	U.S.	Canada
Weekly Demand	​7,000	​6,000
Weekly Capacity	​15,000	​10,000
Sales Price	​$40	​Can$50
Production Cost	​$17	​Can$25

​a. Suppose that the exchange rate is​ Can$1.00 (Canada)​ = $0.76​ (U.S.). What is the best production and distribution​ plan, i.e., how much should be made in each​ country, and how much should be shipped between​ countries?

​(Please, enter your answers as a​ whole​ number).

The U.S. production is

Canada production is

units should be shipped between countries.

​b. Given your plan in part​ a, what is the profit in each country  ​(expressed in

​dollars)​?

Profit in the U.S.​ =

Profit in Canada​ =

Answer 1

Answer:

	Price	Cost	Weekly demand	Wekly supply
US	$40	$17	7000	15000
Canada	$38 (50*.76)	$19 (25*.76)	6000	10000
	$78	$36	13000	25000

The firm using the center of gravity can be located between the two plants in U.S and U.K at the center point given as:

Average demand per week is 13,000/7 is 1857.1428 while average supply is computed by dividing 25,000 by 7 giving us 3571.4285285.714.

The U.S. production is 1857 units

Canada production is 1857 units

units should be shipped between countries 3571.42 units

The best production plan and distribution plan is thus which maximizes revenues from both countries and minimizes production costs as well i.e. the optimal point. The profit in each country in dollars would be computed as below:

.

US Revenue (7000 × $40)	$280,000
Production Cost (15000 × $17)	$255,000
Profit	$25,000
Canada Revenue (6000 × $38)	$228,000
Production Cost (10000 × $19)	$190,000
Profit	$38,000