Q6) A firm is assessing the economic feasibility of a new product design idea. The production...

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Q6) A firm is assessing the economic feasibility of a new product design idea. The production system for the product will have an annualized acquisition cost of $400,000 and the variable cost is estimated to be $8.75 per unit. The marketing department has conducted a market research study and found that potential customers for this product are price-sensitive. The demand as a function of price p is estimated as D(p) = 400-28.2 p, where price is in USD and demand is in thousands. (a) Can the firm sell the new product at $10 per unit and still make a profit? (b) What should price and annual demand be in order for the product to be profitable? (c) If the firm desires to maximize its profit, what should price and annual demand be? (Hint: You may want to plot the profit as a function of price.) Q6) A firm is assessing the economic feasibility of a new product design idea. The production system for the product will have an annualized acquisition cost of $400,000 and the variable cost is estimated to be $8.75 per unit. The marketing department has conducted a market research study and found that potential customers for this product are price-sensitive. The demand as a function of price p is estimated as D(p) = 400-28.2 p, where price is in USD and demand is in thousands. (a) Can the firm sell the new product at $10 per unit and still make a profit? (b) What should price and annual demand be in order for the product to be profitable? (c) If the firm desires to maximize its profit, what should price and annual demand be? (Hint: You may want to plot the profit as a function of price.)

Answer rating: 100% (QA)

SOLUTION a To determine if the firm can sell the new product at 10 per unit and still make a profit we need to calculate the profit margin per unit We can do this by subtracting the variable cost from ... View the full answer