Assume Kanata Corporation is a leading manufacturer of telecommunications equipment based in Ontario, Canada. Its main product
Question:
Assume Kanata Corporation is a leading manufacturer of telecommunications equipment based in Ontario, Canada. Its main product is micro processor controlled telephone switching equipment, called automatic private branch exchanges (PABXs), capable of handling 8 to 3,000 telephone extensions. Severe price cutting throughout the PABX industry continues to put pressure on sales and margins. To better compete against increasingly aggressive rivals, the company is contemplating the construction of a new production facility capable of producing 1.5 million units per year. Kanata's in-house engineering estimate of the total cost function for the new facility is:
TC = $3,000 + $1,000Q + $0.003Q2,
MC = TC/Q = $1,000 + $0.006Q
Where TC = Total Costs in thousands of dollars, Q = Output in thousands of units, and MC = Marginal Costs in thousands of dollars.
A. Estimate minimum efficient scale in this industry.
B. In light of current PABX demand of 30 million units per year, how would you evaluate the future potential for competition in the industry?
CorporationA Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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A Minimum efficient scale is reached when average costs are first minim...View the full answer
