Tex-House builds and sells houses for $200,000 each. The firms fixed costs are $3,000,000. 50 houses are built and sold each year. Profits total about $2,000,000. The firm estimates that it can change its production process by adding 4,000,000 to investment and $1,000,000 to fixed costs. This would reduce variable costs by $30,000 and increase output by 30 units. To permit sales of the new output, prices would have to be lowered by $20,000 per unit.

• Should the firm make the change?
• At the new production level, what price would make profits equal zero?
• Will the new production situation expose the firm to more or less risk?