Economics of Product Variants

The Dishes and Silverware Company (D&S Inc.) can produce plates in four sizes: 6", 8", 10" and 12". The demand for each size is equal at 2000 units, of which D&S Inc. will capture this entire sales volume if offered. The competitive market prices each plate size, see table below. The total variable cost of production, marketing, and distribution of each plate size is also given in the table.

Plate Size/ Unit Cost /Unit Revenue / Max Possible Sales Volume

6" / $6.15/ $12/ 2000

8" / $7.04/ $12 / 2000

10"/ $8.19/ $16/ 2000

12"/ $9.60/ $16/ 2000

Product Variant Economics:

60% of customers that can't find preferred size will buy one size larger.

40% of customers that can't find preferred size will buy one size smaller.

If both smaller and larger size are offered, the customers will only buy the larger one.

Fixed costs are $750 with an additional $500 variable cost per plate variety offered

Determine the number of variations (1, 2, 3, or 4) and which plate sizes D&S Inc. should offer in order to maximize its profit. Plot the profit versus variant offerings. Hint: spreadsheet table for each permutation of possible variant offerings. Both the fixed and variable costs are subtracted from the revenue to yield the profit for that particular variant(s) offering.