A company has fixed costs of $3,800,000 and variable costs of $50 per unit. The firm's marketing department estimates that it faces the following demand schedule displaying the number of units it can sell at various prices:

$130 72,000

$120 90,000

$110 106,000

$100 120,000

Question 1: Which price is optimal?

There is an opportunity to change materials used in the production process. The new materials would add $6 per unit in variable cost but would simplify production in a way that would reduce fixed costs by $520,000 and labor costs (variable) by $1 per unit.

Question 2: Should the company switch to the new materials? (The price is not set.)