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Cruz Company is contemplating whether to start production of a particular product. The firm faces the following relation between price and quantity: Price 662 617
Cruz Company is contemplating whether to start production of a particular product. The firm faces the following relation between price and quantity: Price 662 617 572 Quantity per month 300 400 500 600 700 800 900 1000 1100 1200 482 437 392 347 302 257 Assume that the quantities listed in the table are the only possible quantities of the product that Cruz Company can produce. Cruz estimates it will incur $150,000 in facility costs per month for the new product. In addition, each unit of the product will require direct materials worth $20 and 2 hours of labor. Cruz pays labor an hourly wage rate of $40. (a) Estimate the optimal price at which Cruz should sell the product. (1 point) (6) Assume Cruz is considering an alternative technology which would increase the facility costs by $50,000 per month but would require only 15 minutes of labor. Should Cruz switch to the new technology? (0.5 point)
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