LLA errors Twin Produets produces two pro du ets, with quantities denoted qj and q2' Its eost eurve is given by C(qj,qz) = lOOqj + 100qz + lOqi + lOcE. The firm, however, aggregates the two produets together and uses a simplified speeifieation based on an LLA of C(q) = 200q, where q = ql + q2' The firm has been offered a chanee to supply two extra units of the first produet to a speeial eustomer. The eustomer is willing to pay a total of 600 for these two units.

a] Suppose the eUITent produetion schedule ealls for ql = 10 and qz = O. Is this a reasonable LLA to use for purposes of analyzing the special opportunity?

b] Repeat part [al, assuming the eUITent produetion schedule ealls for qj = 0 and qz = 10.

e] Stay with the story in [b] above. Assume the offer is accepted and total eost turns out to be preeisely as estimated by the C( qj,qz) funetion. Also assume the firm uses standard eosting, based on the noted LLA. What will bc the net "plug" to eost of goods sold, refleeting the differenee between aetual and standard eost of produets manufaetured during the period?

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