Question

Oppenheimer Visuals manufactures state- of- the- art flat- panel plasma display screens that large computer companies like Dell and Gateway assemble into flat- panel monitors. Oppenheimer produces just the display panels, not any of the electronics, cases, or stands needed to make a complete unit. It is about to launch a new product employing TN polarized glass with a unique microscopic groove pattern. Two different technologies exist that can produce the unique groove pattern. One technology has a fixed cost of $ 34,000 per day and a variable cost of $ 200 per panel. The second technology has a fixed cost of $ 16,000 per day and a variable cost of $ 400 per panel. The fixed costs of the two technologies consist entirely of three- year leases for equipment to produce the panels. Both technologies are equally reliable and produce panels of equal quality. The only difference between the two technologies is their cost structures.
Because Oppenheimer holds a patent on the new YN polarized glass flat- panel displays, it has some market power and expects to sell the new display panels to computer companies based on the following demand schedule:
Price per Display Panel Quantity (per Day)
$ 760 ........... 60
740.............. 65
720.............. 70
700.............. 75
680.............. 80
660.............. 85
640.............. 90
620.............. 95
600.............. 100
580.............. 105
560.............. 110

In other words, if Oppenheimer sets the price per panel at $ 760, it expects to sell 60 panels per day. If it sets the price at $ 560, it expects to sell 110 panels per day.

Required:
a. To maximize firm value, should Oppenheimer Visuals choose technology 1 or technology 2 to manufacture the new flat-panel display?
b. Given the technology choice you made in part (a), what price should Oppenheimer charge for the new flat- panel display?
c. Using Oppenheimer Visuals as an example, explain what is meant by the often used expression, “All costs are variable in the long run.”



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  • CreatedDecember 15, 2014
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