Hennessy, David A.

Southern Economic Journal Vol. 63 (July 1996): 223-232.

Optimal decisions are studied for material subjected to purification and/or blending processes. The slope and curvature of the retail price-quality schedule are found to determine optimal processing decisions. When processing is costless, linear raw material price-quality schedules result from maximizing value added. In general, any combination of purified, blended, and unprocessed intervals may occur along the quality spectrum. Counterintuitively, material in concave regions of the retail price-quality schedule may be purified, while regions in convex regions may be blended.