Suppose you are currently producing and selling 100 pounds of marijuana each month at a price of $2,000 per pound. Your variable production costs are $1,200 per pound and your fixed costs are $50,000 per month.

1. What is your current profit each month and margin of safety?

2. What would your profit per month be if selling price declines by 25%?

3. At what selling price would you earn zero profit?

4. To offset the potential decline in prices, you are considering converting to sun-grown, organic production. This conversion would increase your selling price to $2,500 per pound but also increase your variable costs per unit.

(a) By how much can the conversion increase your variable costs per unit if you want to maintain your current profit?

(b) By how much can the conversion increase your variable costs per unit if you want to at least break even?

(c) How would your answers to (a) and (b) change if the conversion would also increase fixed costs by $20,000?