Q1New Service

The organization that you manage has already invested $7 million in developing a new service, but the development is not quite finished. In order to start delivering services to clients, your organization will need to spend an additional $1 million for development and production. You learn at a meeting that the introduction of competing services has reduced the expected sales of your new service to $3 million.

Should you go ahead and complete the development of the new service?

Yes or No

If so, what is the most that you should pay to complete the development of the new service?

Explain your reasoning.

Q2

Teacher's Helper, Inc. (THInk) is a small company that produces instructional materials for the New York City public schools. It has rented several rooms in an office building for $600 a month, and has leased specialized computers for $480 a month, from SoftyWare. Both are necessary for production. (Based on an exam question.)

The table below shows the total variable costs for each unit of output.

Output Total (modules) Variable Costs 0 550 2 1000 3 1400 4 1850 5 2400 6 3000 7 3700 8 4500