Preliminary plans are underway for the construction of a new stadium for a major league baseball team. City officials question the number and profitability of the luxury corporate boxes planned for the upper deck of the stadium. Corporations and selected individuals may buy the boxes for $100,000 each. The fixed construction cost for the upper-deck area is estimated to be $1,500,000, with a variable cost of $50,000 for each box constructed.
a. What is the breakeven point for the number of luxury boxes in the new stadium?
b. Preliminary drawings for the stadium show that space is available for the construction of up to 50 luxury boxes. Promoters indicate that buyers are available and that all 50 could be sold if constructed. What is your recommendation concerning the construction of luxury boxes? What profit is anticipated?