Q1: Ace Shoe Company sells heel replacement kits for men's shoes. It has fixed costs of $9

million and unit variable costs of $5 per pair. Ace is considering a switch from manual labour

to an automated process. New equipment would cost an additional $4 million per year while

lowering variable costs by $3 per shoe repair kit.

a) How many kits using the manual labour method need to be sold at $17 to break

even?

b) How many kits would Ace have to sell at $17 per pair to make $2 million in

profits in the next year with the automated process?

c) To increase profits by an additional $1,500,000 the following year, how many

kits would Ace have to sell, if the price was reduced by 10%?

Q2: India has accused many firms from China of predatory pricing.

a) Describe predatory pricing?

b) What is the intent (or benefit) of predatory pricing?