Question
ChemEX is a worldwide producer of specialty chemicals. They are seeing decreases in demand of two of its products and seek to rebalance its manufacturing
ChemEX is a worldwide producer of specialty chemicals. They are seeing decreases in demand of two of its products and seek to rebalance its manufacturing capabilities. The following is a table of capacity, in millions of kilograms:
| Region | Plant | Capacity | Sales 1 | Production 1 | Sales 2 | Production 2 |
| North America | Louisiana, USA | 35 | 20 | 15 | 22 | 10 |
| East Asia | Chengdu, China | 45 | 15 | 20 | 15 | 25 |
| South America | Sao Paulo, Brazil | 20 | 8 | 10 | 5 | 10 |
| Europe | Hamburg, Germany | 40 | 12 | 10 | 15 | 10 |
| South Asia | Chennai, India | 35 | 10 | 10 | 8 | 10 |
Fixed and variable costs are shown in the next table:
| Plant | Fixed Cost | Chem 1 FC | Chem 2 FC | Chem 1 VC | Chem 2 VC |
| Louisiana | $35M | $5M | $6M | $5.2/kg | $6.6/kg |
| Chengdu | $22.5M | $4M | $8M | $6.4/kg | $8.2/kg |
| Sao Paulo | $10M | $2M | $4M | $7.0/kg | $9.4/kg |
| Hamburg | $40M | $8M | $10M | $6.0/kg | $11.0/kg |
| Chennai | $20M | $4M | $7M | $4.4/kg | $6.2/kg |
Transportation costs are considered from plants to customers in each market:
|
| North America | East Asia | South America | Europe | South Asia |
| Louisiana | $0.2/kg | $0.8/kg | $0.4/kg | $0.5/kg | $1.2/kg |
| Chengdu | $1.2/kg | $0.2/kg | $0.8/kg | $1.2/kg | $0.6/kg |
| Sao Paulo | $0.4/kg | $1.0/kg | $0.2/kg | $0.7/kg | $1.4/kg |
| Hamburg | $0.5/kg | $1.6/kg | $0.8/kg | $0.2/kg | $0.8/kg |
| Chennai | $1.4/kg | $0.8/kg | $1.4/kg | $0.6/kg | $0.8/kg |
Tariffs:
|
| North America | East Asia | South America | Europe | South Asia |
| Louisiana | 0% | 9% | 14% | 4% | 14% |
| Chengdu | 5% | 0% | 14% | 4% | 14% |
| Sao Paulo | 2% | 9% | 0% | 4% | 14% |
| Hamburg | 0% | 9% | 14% | 0% | 14% |
| Chennai | 5% | 9% | 14% | 4% | 0% |
Note that capacity in each plant can be used for any combination of Chemical 1 or Chemical 2, provided they do not exceed the total plant capacity in millions of kg. I posted last years sales and production numbers. Next year may be difficult to reach the same sales in each region for each chemical, but our forecast is for a repeat of sales, but no more.
Which plants should remain open?
Which plants should produce Chemical 1?
Which plants should produce Chemical 2?
What is the total cost?
If tariffs increase from 0-5% to 30% for foreign plants serving North America, how does this change our plans?
What if the countries retaliate with US tariffs and increase their tariffs 25% more for chemicals shipped from Louisiana?
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Intermediate Microeconomics And Its Application
Authors: Walter Nicholson, Christopher M. Snyder
13th Edition
0357133064, 978-0357133064
