Meera Rao is the CEO of Rao Road Resorts (RRR), a luxury motorhome manufacturer. Although sales have slowed because of a national recession, it now looks as if the recession is about to end. Ms. Rao wants to be ready with material, labor, and supervisors to meet the demand for motorhomes.

Last year, Meera built and sold 25 luxury motorhomes. With a recent recession over, Ms. Rao thinks that her sales will increase to 50 units for the current year. The going market price for this model (which Meera and her numerous competitors have charged) has been $125,000. In addition, Rao's marginal cost of building this model averages $105,000.

a. Based on these facts, recommend a course of action for Meera.

b. Suppose that the economic boom raises the cost of labor and raw materials, so that the additional cost of a starter house rises to $115,000. What is Meera's most profitable course of action? Explain.