Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Haiyang Brewery makes generic beer. The firm operates at maximum capacity and regularly sells its entire output (100,000 pints per month) in a perfectly competitive
Haiyang Brewery makes generic beer. The firm operates at maximum capacity and regularly sells its entire output (100,000 pints per month) in a perfectly competitive market at a price of $6.25 per pint. The firm's labor cost is $3 per pint, raw materials cost is $1 per pint, fixed cost is $75,000 per month and depreciation is $125,000 per month. Haiyang is deciding whether to begin making a new craft beer. The firm cannot add any labor or production equipment in the short term so every pint of craft beer it produces means one less pint of generic. The firm's analysts have estimated the demand function for the new beer: P = 14 Q/12,500, and they provided profit estimates for various quantities: Quantity 25,000 50,000 75,000 100,000 Price per pint 12.00 10.00 8.00 6.00 Costs per pint: Raw materials 3.75 3.75 3.75 3.75 Labor 3.00 3.00 3.00 3.00 Depreciation 1.25 1.25 1.25 1.25 Fixed Costs 0.75 0.75 0.75 0.75 Profit per pint 3.25 1.25 0.75 2.75 How much of the new craft beer should Haiyang produce per month to maximize its profits
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started