Question

Get Answer Carla Inc. produces organic cranberry juice from cranberries it farmed. Unfortunately, it has been a bad year for cranberries because of severe cold weather. Carla has only 9,600 litres of juice. It usually sells 14,100 litres at $3.10 per litre. The variable costs of farming the cranberries are $0.65 per litre. Carla has loyal customers, but its managers are worried that the company will lose customers if it does not have juice available for sale when people stop by the farm. A neighbour is willing to sell 4,500 litres of extra cranberry juice at $3.05 per litre. (b) Using the general decision rule, what is the most per litre that Carla's managers would be willing to pay for additional juice

Answer 1

Answer:

$3.10 per liter

Explanation:

Carla's stock of cranberry juice = 9,600 liters

her estimated stockout = $14,100 - 9,600 = 4,500 liters

in order to maximize accounting profits, a company should sell its products at a price where marginal revenue = marginal costs

in this case, the marginal revenue = $3.10 per liter, therefore, Carla should be able to pay up to $3.10 per liter in order to obtain the cranberry juice that is missing

this means that she should go ahead and accept her neighbor's offer.