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Author Question: Funding a Missile Program Merowak Missiles is proposing to develop its next generation Democratizer ... (Read 223 times)

09madisonrousseau09

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on: Jul 1, 2018
Funding a Missile Program Merowak Missiles is proposing to develop its next generation Democratizer Offensive Weapon System II (DOWS II) for the US military. It expects to have to sink 1 billion into R&D and design, spend 0.5 billion building the tools and production facility that are unique to DOWS II production. It houses these in standard factory floor space that costs 1 million. Each missile has a marginal cost of 2,000 . The Pentagon is considering ordering 1 million of these missiles. What is the average cost per missile that Merowak could bid for the contract?

Question 2

If Tattling Tina does not tattle, what would Bratty Brenda's best response be
 a. Hit
 b. Not hit
  c. Run
 d. Hide


stallen

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Reply #1 on: Jul 1, 2018
Answer to Question 1

Fixed costs are the 1 billion R&D and design costs, 0.5 billion for specialized tools and facility are not yet sunk and, therefore, relevant to the decision. The 100,000 for the factory floor space can be avoided because it can be repurposed for any manufacturing. So the average avoidable costs are 2,000 + 1.501 billion / 1 million = 17,001 per missile.

Answer to Question 2

a


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