Microchip-X is a company that specializes in producing microchips. It sells these microchips to high-tech manufacturers of electronic control devices. The cost of producing a microchip is$30, Microchip-X can sell the chips to other high-tech manufacturers for$55. Microchip-X can produce, at most, 1 million microchips each year.

Suppose nowthat the workers' unions of many of

the key high-tech manufacturers of electronic control devices (Microchip-X's

customers) go on strike. Under these new market conditions, Microchip-X

receives outside orders of only 800,000 units from the high-tech manufacturers

(at the same price of$55, and so it has some idle capacity.

As a result, the company is considering producing a

certain electronic control device by itself. Producing each control device

involves putting in two microchips plus an additional$50in labor

costs. To open this new product line, Microchip-X must rent a new plant, which

costs$2million each year. It also needs to borrow$20million

as working capital (the annual interest rate is 5%). The company can sell each

control device for$150.

(b) Should Microchip-X start the new product line to utilize its 200,000-unit unused microchip capacity?