1.You have one machine in your factory that is needed for two different products.

Variable cost / unitFixed cost / monthSales priceTime on machine / unit

Product A3.96150,000154.6 mins

Product B2.940,000TBD3.3 mins

The machine can be used for a total of 1200 minutes per day (4 hours downtime for maintenance).

First, calculate the shadow cost of a minute of machine time based on product A. {Round to 2 decimal places.)

2.Notwithstanding the answer you got for the prior question, assume the shadow cost is $3.

Product A can be completely sold at the $15 price regardless of production volume.

Product B has a much smaller market with a downward sloping demand curve with the following form:

Daily sales volume = 150 - Sales price x 5.6.

First determine the appropriate total variable cost per unit for product B inclusive of opportunity cost. {Round to 2 decimal places.)

3.Notwithstanding the answer you got to the prior question, assume the variable cost per unit including opportunity cost is $10 for product B.

What price should you charge for product B to maximize your company's total profit? (Choose a price to the cent, so 2 decimal places.)

4.Which of the following isnota true statement about this scenario?

a.

Product B will be unprofitable at the optimal price.

b.

If you ignored opportunity cost, you'd overproduce B and underproduce A.

c.

Using the $3 shadow cost assumed in question 2, an additional machine should be acquired if its daily cost is less than $3,600.

d.

All of the above statements are true.