Question

last year a toy maunufacturer introduced a new toy truck that was a huge success.The company invested$2.5 million for a plastic molding machine (which can besold for $2million) and $100,000 in plastic injection molds specifically for the toy(which are not valuable to anyone else).Labor and the cost of materials necessary to make each truck is about $3.This year,a competiter has developed a similar toy that has significantly reduced demand for the toy truck.Now the original manufacturer is deciding whether they should continue the production of the toy truck.If the estimated demand is 100,000 trucks,what is the break even price for the toy truck.Should they shut down

Answer 1

$29

Step-by-step explanation:

The computation of break even is shown below:-

Total cost =$2,500,000 + $100,000 + 3Q

Total revenue = Profit maximization

TR = PQ

= Profit maximization -$2,600,000 - 3Q

Therefore the break even point total profit must be zero

PQ - $2,600,000 - 3Q = 0

P = ($2,600,000 + 3Q) (Q)

Assuming Q = $100,000

P = ($2,600,000 + $300,000) ÷ (100,000)

= $29