Author Question: Expansion Your firm prints the novelty baseball cards that candy makers include in their bubblegum. ... (Read 37 times)

waynest · **on:** Jul 1, 2018

Expansion Your firm prints the novelty baseball cards that candy makers include in their bubblegum. Since you regularly sell 100,000 cards per week, you invested in four separate production lines that can each produce 25,000 cards in a standard 40 hour work week. Now a few of the candy makers are signed long term contract that will increase their orders so that you will need to produce 150,000 cards per week. If you can invest in two new production lines at the same cost as your previous four, what does this imply for the shape of your long-run marginal cost curve? What does it imply for changes in your pricing?

Question 2

You can invest 100,000 into either project A or B. You estimate that A would succeed with a probability of 0.5 in which case it doubles in value. If it fails, its scrap value is 50,000 . Project B would succeed with probability 0.8, in which case it would have a value of 150,000 . If it fails, project B's scrap value is 30,000 . Which project should you invest in?
a. Project A
b. Project B
c. Neither of the projects
d. You cannot tell from the information presented

ankilker · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

Since this increase in production seems likely to be permanent, it pays to invest in additional production lines. But your facility can scale up at the same cost as before or that long-run marginal costs are constant. This means that you need not adjust prices for cost reasons.

Answer to Question 2

b