INFORMATION

Location

Fixed costs

Variable costs per unit

A

R$3000000$

R$50$

B

R$4500000$

R$25$

C

R$6000000$

R$15$

After an extensive market survey, the operations analyst of DGB Enterprises has estimated a R$75$ target selling price for

each unit of the product expected to be produced at the facility.

Required:

$(3$ marks$)$

$2\mathrm{.}1.$ Formulate the cost functions for each of the three locations.

$2\mathrm{.}2.$ Using a range of production output of $0200000$ units at intervals of $5000$ units, plot the total production cost curves

of the three locations on the same graph.

$(5$ marks$)$

$2\mathrm{.}3.$ Formulate the profit functions for each of the three locations.

$(3$ marks$)$

$2\mathrm{.}4.$ Determine the profits of the three locations for an estimated production and sales volume of $175000$ units per year.

$(3$ marks$)$

$2\mathrm{.}5.$ Based on the estimated production and sales volume of $175000$ units per year, which of the three locations would

you recommend for the location of the new manufacturing facility?