Marginal Revenue, Pricing and Elasticity Analysis. ( Show your solution)

1. Last year, a toy manufacturer introduced a new toy truck that was a huge success. The company invested $2 million for a plastic injection molding machine and $100,000 in plastic injection molds specifically for the toy . Labor and the cost of materials necessary to make each truck is about $3, the company 's total revenue is $6M . This year, a competitor has developed a similar toy that has significantly reduced demand for the toy truck. Now, the original manufacturer is deciding whether they should continue production of the toy truck. If the estimated demand is 100,000 trucks

a. How much is the unit cost?

b .what is the break-even price for the toy truck?

c. How much is the selling price for the company to earn pure profit?

d. Should you shut down, or continue the operation? Justify your answer.

2. At the price of $15, Zeke were able to sell 7,000 ball pens . When he increased the price by $10, he sold only 5,000 pens. What is the demand elasticity? If his marginal cost is $3 per pen, what is his desired markup and what is his initial actual markup? Was raising the price profitable?