Question
.1. Imagine that you are hired by the exercise bike company to help them decide which product lines they should continue developing. One product that
.1. Imagine that you are hired by the exercise bike company to help them decide which product lines they should continue developing. One product that the firm is particularly excited about is a new treadmill. The table below contains some relevant, but incomplete, information about the treadmill answer questions a. and b.
Treadmills | Price | Revenue | Total cost | Total fixed cost | Total variable cost |
5 | $150 | $1610 | $750 | ||
10 | $135 | $2060 | $750 | ||
15 | $130 | $2655 | $750 | ||
20 | $126 | $3240 | $750 | ||
25 | $122 | $3775 | $750 |
A. Fill in the missing information in the revenue and total variable cost columns.
B. What quantity of treadmills do you recommend the firm produce in the short run, and why?
C. In addition, the firm is thinking about expanding into clothing production, specifically, exercise socks and leggings. The firm's total fixed costs for the clothing production would be $240,000. The company decides that the socks should sell for $10 a pair; the average variable cost of production for is $9. At this price, the firm sells 100,000 pairs of socks. For the leggings, the company sets a price of $65 a pair; these have an average variable cost of $40. They sell 5,400 pairs of leggings.
i. What decision about production should the firm make in the short run?
ii. What decision about production should the firm make in the long run?
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