Final answer:
The traditional method of making product mix decisions includes considerations of market demand, cost of production, and profitability, which are integrated with an understanding of the firm's cost structure and the competitive market structure.
Step-by-step explanation:
The traditional method of making product mix decision considers a combination of factors that are critical for achieving profitability. These factors are
Production involves several important decisions that define a firm's behavior, such as what product or products should the firm produce, how the firm should produce the products, how much output should be produced, what price should be set for the products, and how much labor should the firm employ. Decisions also depend on the production and cost conditions facing each firm, as well as the market structure for the product(s) in question, including the industry's competitiveness, market power of each firm, product similarity, and the ease of entry for new firms.
Furthermore, the firm must consider the costs of production and how they impact decision-making in relation to fixed and variable costs, average total cost, average variable cost, and marginal cost. To optimize their product mix, firms need to integrate these cost considerations with an understanding of market dynamics, including sales, revenue, and the number of sellers.