demand.The component sells for $20 each.Calibrated's current capacity is 10,000 units per week.For the last few months, however, the company has been receiving new orders at a rate of 14,000 units per week, and now has a substantial backlog.The company expects this order rate to continue, if it maintains price.Calibrated's current operating data follows:

Sales Revenue

$200,000

Variable Costs

$100,000

Fixed Costs

$80,000

Pretax Profit

$20,000

For each incremental addition of 500 units of output weekly, Calibrated would need to purchase new equipment that would add $1,500 to weekly fixed costs.No other fixed costs would become incremental for this price change.Labor costs currently account for half of all variable costs.Additional hires, however, are expected to be more costly than the average of current employees because of their lower productivity.Although new hires are paid (wages + fringe benefits) only 80% of the current average, they can produce only two-thirds as much output per hour.Consequently, labor costs for additional output with new hires is 20% higher than the current average.

Calibrated is debating whether to keep its current price and expand to meet the demand or to raise its price to reduce demand somewhat before deciding whether or not to expand.

For purposes of this case assignment the calculations for questions 1 and 2 have been provided.

Please answer questions 3 and 4.

3.indicate the risks to Calibrated by increasing price to maximize profit?

4.indicate the risks to Calibrated by expanding output rather than reducing demand through a price increase.