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(b) Corporate customers sometimes place special orders for customized versions of Canada Duck's coat. Because they command premium prices, corporate orders generate higher producer surplus
(b) Corporate customers sometimes place special orders for customized versions of Canada Duck's coat. Because they command premium prices, corporate orders generate higher producer surplus (contribution). Suppose that the producer surplus per customized coat is $200, Canada Duck has just received an unexpected corporate order for 400 coats but has no extra capacity to produce them. If it produces any of these customized coats, it will have to reduce the production of the regular coats (one customized coat for one regular coat). (i) Taking into account the forgone opportunity from the corporate orders, what is the marginal (opportunity) cost of producing a regular coat? (5 points) (ii) With the new marginal cost, find the profit-maximizing output and price of the regular coat. Is Canada Duck going to take the corporate order? [10 points]
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