Problem A large company in the communication and publishing industry has quantified the relationship between the price of one of its products and the demand for this product as: Price = 150-0.01 × Demand for an annual printing of this particular product. The company is planning its productions for the year 2021. The company is considering the production of a certain number of 2,000 pages units. In 2019 the company had produced 4 similar units but with fewer pages count per unit (1,200; 1,400; 1800; and 1,900), and the material costs associated with those 4 units are (14.15 JD, 15.65 JD, 18.25 JD, and 18.90 JD respectively). The material cost index values were 185 for 2018, 193 for 2019, 200 for 2020, and 206 for 2021. The fixed costs per year (i.e., per printing) = 50,000 JD, and the variable cost will consist of the material cost and the labor cost. The company started to produce 2000 pages unit in 2021, and the project management team observed that 8.23 labor hours were needed to produce the first unit; however, the number of labor hours per unit decreased thereafter at an 80% learning slope. Use the 6th unit as the basis for estimating the average labor hours per unit and assume the 2021 average labor wage is 4.0 JD per hour. (a) What is the range of profitable demand? (b) At what demand the company will ensure the maximum profit that can be achieved if the maximum expected demand is 6,000 units per year? (How many units should the company produce in 2021 in order to maximize its profit?) (c) Based on the demand identified in part (b), what is the breakeven selling price per unit? (d) Based on the demand identified in part (b), what is the selling price per unit? (e) How much profit will the company make in 2021 using the optimal demand?
Problem A large company in the communication and publishing industry has quantified the relationship between the price of one of its products and the demand for this product as: Price = 150-0.01 × Demand for an annual printing of this particular product. The company is planning its productions for the year 2021. The company is considering the production of a certain number of 2,000 pages units. In 2019 the company had produced 4 similar units but with fewer pages count per unit (1,200; 1,400; 1800; and 1,900), and the material costs associated with those 4 units are (14.15 JD, 15.65 JD, 18.25 JD, and 18.90 JD respectively). The material cost index values were 185 for 2018, 193 for 2019, 200 for 2020, and 206 for 2021. The fixed costs per year (i.e., per printing) = 50,000 JD, and the variable cost will consist of the material cost and the labor cost. The company started to produce 2000 pages unit in 2021, and the project management team observed that 8.23 labor hours were needed to produce the first unit; however, the number of labor hours per unit decreased thereafter at an 80% learning slope. Use the 6th unit as the basis for estimating the average labor hours per unit and assume the 2021 average labor wage is 4.0 JD per hour. (a) What is the range of profitable demand? (b) At what demand the company will ensure the maximum profit that can be achieved if the maximum expected demand is 6,000 units per year? (How many units should the company produce in 2021 in order to maximize its profit?) (c) Based on the demand identified in part (b), what is the breakeven selling price per unit? (d) Based on the demand identified in part (b), what is the selling price per unit? (e) How much profit will the company make in 2021 using the optimal demand?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:Problem
A large company in the communication and publishing industry has quantified the relationship
between the price of one of its products and the demand for this product as:
Price = 150 – 0.01 × Demand for an annual printing of this particular product.
The company is planning its productions for the year 2021. The company is considering the
production of a certain number of 2,000 pages units. In 2019 the company had produced 4 similar
units but with fewer pages count per unit (1,200; 1,400; 1800; and 1,900), and the material costs
associated with those 4 units are (14.15 JD, 15.65 JD, 18.25 JD, and 18.90 JD respectively). The
material cost index values were 185 for 2018, 193 for 2019, 200 for 2020, and 206 for 2021.
The fixed costs per year (i.e., per printing) = 50,000 JD, and the variable cost will consist of the
material cost and the labor cost.
The company started to produce 2000 pages unit in 2021, and the project management team
observed that 8.23 labor hours were needed to produce the first unit; however, the number of labor
hours per unit decreased thereafter at an 80% learning slope. Use the 6th unit as the basis for
estimating the average labor hours per unit and assume the 2021 average labor wage is 4.0 JD per
hour.
(a) What is the range of profitable demand?
(b) At what demand the company will ensure the maximum profit that can be achieved if the
maximum expected demand is 6,000 units per year? (How many units should the company
produce in 2021 in order to maximize its profit?)
(c) Based on the demand identified in part (b), what is the breakeven selling price per unit?
(d) Based on the demand identified in part (b), what is the selling price per unit?
(e) How much profit will the company make in 2021 using the optimal demand?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step 1: State the given information
VIEWStep 2: Calculate the costs first
VIEWStep 3: Find the range of profitable demand
VIEWStep 4: Determine the demand for maximum profit
VIEWStep 5: Find break-even selling price
VIEWStep 6: Find the selling price
VIEWStep 7: Calculate the profit for 2021
VIEWSolution
VIEW
Step by step
Solved in 8 steps with 26 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education