Determination of optimal product mix by marginal analysis

Abstract

This paper presents an integrated model which simulates the interaction of demand, production cost factors and plant capacity, in order to determine an optimal profit product mix. Factual data from a manufacturing company are analysed, and the results obtained by the model are compared with the plan initially chosen by the company management.

To demonstrate the application of the model, three products which are interchangeable with respect to plant capacity, and which have different profit ratios, cost structures, demand elasticities, and market growth potential are studied.

A computer program which performs the numerous repetitive calculations is described, including a summary report