Lambda Computer Products competed for and won a contract to produce two prototype units of a new type of computer that is based on laser optics rather than on electronic binary bits.

The first unit produced by Lambda took 5,000 hours to produce and required $250,000 worth of material, equipment usage, and supplies. The second unit took 3,500 hours and used $200,000 worth of materials, equipment usage, and supplies. Labor is $30 per hour.

The company expects “learning” to occur relative to labor and also the pricing of parts from suppliers.

a. Lambda was asked to present a bid for 10 additional units as soon as the second unit was completed. Production would start immediately. What would this bid be?

b. Suppose there was a significant delay between the contracts.

During this time, personnel and equipment were reassigned to other projects. Explain how this would affect the subsequent bid.

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