3. Pages firm is starting out, and he is not sure how much of the firms product he will be able to sell. He can begin with three alternative levels of capacity: 0-20,000 units (low), 0-40,000 units (medium), or 0-60,000 units (high). The total fixed costs depend on the capacity level chosen: $50,000 (low), $80,000 (medium), or $100,000 (high). Page is sure that at all levels of production and sales, the sales price, unit variable manufacturing and unit variable selling costs will be $10, $5, and $1, respectively. Also, Page only produces units as demanded by customers.

1. For each level of capacity, what is the break-even point in units?

2. Suppose Page can sell as much as he wants within each capacity level. Which level of capacity leads to highest profits?

3. As discussed in class, the choice of capacity level is not a trivial task. If Page chooses too low a capacity level, then he risks losing out on potential sales. But, if Page chooses too high a capacity level, then he risks incurring a loss if demand is low. Over what range of demand is the low capacity level optimal? What about the medium capacity level? Finally, what about the high capacity level?