As we discussed previously, we produce electronic chips for automobiles. We currently sell to most major auto manufacturing companies. We currently produce in one facility, but we are considering opening a second manufacturing facility. We would like your help in determining whether we should maintain only one facility or move forward with opening a second facility. Our Data Analytics team has estimated the weekly cost structure for our existing facility as TC₁= 20,000+ 0.5Q₁² and has projected a weekly cost structure for the potential second facility to be TC2 = 40,000+ 0.25Q2². Our weekly inverse demand function is estimated as P = 500 -0.5Q. Can you please provide me a recommendation on whether or not we should open our second facility? In your analysis, please let me know what the profit maximizing price, output, and profit would be with maintaining only our first facility. And, what the profit maximizing price, output, and profit would be at both facilities if we move forward with opening the second facility.

As we discussed previously, we produce electronic chips for automobiles. We currently sell to most major auto manufacturing companies. We currently produce in one facility, but we are considering opening a second manufacturing facility. We would like your help in determining whether we should maintain only one facility or move forward with opening a second facility. Our Data Analytics team has estimated the weekly cost structure for our existing facility as TC₁= 20,000+ 0.5Q₁² and has projected a weekly cost structure for the potential second facility to be TC2 = 40,000+ 0.25Q2². Our weekly inverse demand function is estimated as P = 500 -0.5Q. Can you please provide me a recommendation on whether or not we should open our second facility? In your analysis, please let me know what the profit maximizing price, output, and profit would be with maintaining only our first facility. And, what the profit maximizing price, output, and profit would be at both facilities if we move forward with opening the second facility.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

As we discussed previously, we produce electronic chips for automobiles. We currently sell to
most major auto manufacturing companies. We currently produce in one facility, but we are
considering opening a second manufacturing facility. We would like your help in determining
whether we should maintain only one facility or move forward with opening a second facility.
Our Data Analytics team has estimated the weekly cost structure for our existing facility as TC₁=
20,000+ 0.5Q₁² and has projected a weekly cost structure for the potential second facility to be
TC2 = 40,000+ 0.25Q2². Our weekly inverse demand function is estimated as P = 500 - 0.5Q.
Can you please provide me a recommendation on whether or not we should open our second
facility? In your analysis, please let me know what the profit maximizing price, output, and
profit would be with maintaining only our first facility. And, what the profit maximizing price,
output, and profit would be at both facilities if we move forward with opening the second
facility.

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Step 1: Defining profit

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Step 2: Find the profit maximizing price, output and profit using the first facility

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Step 3: Find the relationship between Q1, Q2 and Q

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Step 4: Find the profit maximizing price and output using the both facilities

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Step 5: Find the profit and determine whether both the plants should be operated or not

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