LePharmaPrix is a drug company that wants to grow rapidly. In the past, the invested millions of dollars in and have come up with one generic drug for treatment of acidity. Aciditybuster sells for $8 and requires one hour of labor to manufacture. LePharmaPrix had several competitors in this market space and worked on several aspects to increase their market span. After several rounds of deliberations, the management at LePharmaPrix agreed to procure a company ApniDawai which owns a medicine Nida, that is prescribed for acidity and heartburn. The scientists at LePharmaPrix strongly recommended buying ApniDawai because the chemical composition was very appealing. They found that Nida could be developed by adding a few more chemicals to two units of Aciditybuster which made this procurement a perfect marriage. In their labs the setup to make one unit of Nida by first making two units of AcidityBuster and putting two hours of labor. It however turns out that the AcidityBuster marked to produce Nida cannot be sold separately. Nida sells for $70. Using this same approach of acquiring companies, the management of LePharmaPrix procured another company Jinko which manufactures Tuti, a medication that is prescribed for a heart condition. The medicine Tuti requires one unit of Nida and 3 hours of labor. All Nida marked to produce Tuti cannot be sold separately. Tuti sells for $100. LePharmaPrix has invested a lot in the companies and is looking to maximize the revenue, however cannot increase the labor capacity by more than 4000 hours on a daily basis.
Questions a) What is the optimum model that lePharmaprix should produce for AcidityBuster, Nida and Tuti?
b) Comment management’s rationale of procuring the companies based on your optimum model analysis?
c) Do you think the prices are defined properly? Discuss with respect to each product.