PROBLEM 2

2
Profit = -10m + 400Q = 0
Thus, 400Q = 10m ó Q = 10m/400 ó Q = 25,000

3
0 if Q = 0
Maximize profit = -$10 million + $400Q if Q > 0

subject to
Q£s
Q³0

4
Unit Revenue 1,700 Total Revenue 51,000,000
Fixed Cost 10,000,000 Total Fixed Cost 10,000,000
Marginal Cost 1,300 Total Marginal Cost 39,000,000
Sales Forcast 30,000 Profit (Loss) 2,000,000

Production Quantity 30,000 Break-even Point 25,000

5
Unit Revenue 1,700 Total Revenue 34,000,000
Fixed Cost 10,000,000 Total Fixed Cost 10,000,000
Marginal Cost 1,300 Total Marginal Cost 26,000,000
Sales Forcast 30,000 Profit (Loss) -2,000,000

Production Quantity 20,000 Break-even Point 25,000

The production quantity should be 30,000 units so that the company will gain 2 million in terms of profit,
instead of loosing 2 million if it produces 20,000 units.
terms of profit,
PROBLEM 4

a.
The buy option

Unit Revenue 2,000 Total Revenue 60,000,000

Fixed Cost 5,000,000 Total Fixed Cost 5,000,000
Marginal Cost 1,250 Total Marginal Cost 37,500,000
Sales Forcast 30,000 Profit (Loss) 17,500,000

Production Quantity 30,000 Break-even Point 6,667

b.
The make option in Figure 1.3

Unit Revenue 2,000 Total Revenue 60,000,000

Fixed Cost 10,000,000 Total Fixed Cost 10,000,000
Marginal Cost 1,000 Total Marginal Cost 30,000,000
Sales Forcast 30,000 Profit (Loss) 20,000,000

Production Quantity 30,000 Break-even Point 10,000

Thus, make option is the better.

c.
0 if Q = 0
Maximize profit = -$5 million + $750Q if Q > 0 (buy option)
-$10 million + $1,000Q if Q > 0 (make option)

subject to
Q£s
Q³0

Break-even point = (10m - 5m)/(1,250 - 1,000) = 20,000

The company needs to produce 20,000 units of LCD display.

d.
e.

Total Production Cost = Total Purchase Cost

Thus, 10m + 1,000Q = 5m + 1,250Q Û 250Q = 5m Û Q = 5m/250 Û Q = 20,000

f.

Fixed Production Cost 10,000,000 Fixed Production Cost 10,000,000

Fixed Purchase Cost 5,000,000 Fixed Purchase Cost 5,000,000
Marginal Production Cost 1,000 Variable Production Cost 30,000,000
Marginal Purchase Cost 1,250 Variable Purchase Cost 37,500,000
Sales Forecast 30,000
Break-even Point 20,000

Below 20,000 units, purchasing will be the better option.

Above 20,000 units, producing will be the better option.