Hot & Cold and CaldoFreddo are two European manufacturers of home appliances that have merged. Hot & Cold has plants in France, Germany, and Finland, whereas CaldoFreddo has plants in the United Kingdom and Italy. The European market is divided into four regions: North, East, West, and South. Plant capacities (millions of units per year), annual fixed costs (millions of euros per year), regional demand (millions of units), and variable production and shipping costs (euros per unit) are shown below
Company
Plant Variable Production and Shipping Costs Capacity Annual
Fixed Cost
North East South West
Hot & Cold France 100 110 105 100 50 1000
Germany 95 105 110 105 50 1000
Finland 90 100 115 110 40 850
Demand 30 20 20 35
CaldoFreddo UK 105 120 110 90 50 1000
Italy 110 105 90 115 60 1150
Demand 15 20 30 20
Use Excel Solver to answer the following questions:
1. Before the merger, what was the optimal demand allocation plan for each of the two firms?
2. After the merger, what is the optimal demand allocation plan if none of the plants is to be shut down?
3. After the merger, what is the optimal network configuration and demand allocation plan if plants can be shut down (assume that a shutdown saves 100 percent of the annual fixed cost of the plant)?