Mikey W. Smitty is confident that demand for his “Western Rap” CD will substantially exceed the break-even point computed in Problem 6-3. So, Mikey is contemplating having his CD cut at a classier (and pricier) studio. The cost to record the CD would rise to $9000. However, since this new studio works with very high volume, production costs would fall to $2 per CD.
a. What is the breakeven point for this new process?
b. Compare this process to the process proposed in the previous problem. For what volume of demand should Mikey choose the classier studio?