John’s Faucets makes kitchen faucets which it sells to retail stores throughout the US. John’s Faucets sells on average 1,000 faucets to its regular customers each month. The average price of its faucets is $200. As the manager of John’s Faucets, you have calculated the following average monthly total costs: Rent $10,000 Cost of Materials for Faucets $60,000 Cost of Hourly Wages for $60,000 Labor to Produce Faucets Shipping/Transportation $10,000 Insurance and Office Supplies $5,000 Interest on Loans $5,000 Salaries of Manager/Executives $15,000 And Salespeople John’s Faucets recently learned of an opportunity to sell 300 faucets to Home Depot at a price of $150 per faucet. Assume that this is a one-time deal and that future sales are unlikely Assuming that acceptance of this order would not affect normal sales of faucets and the additional 300 faucets can be manufactured without adding to plant capacity, should John’s Faucets accept this offer to sell 300 faucets to Home Depot? Now, assume that the sale of 300 faucets to Home Depot would cause a decrease in the sale of 100 faucets to its regular customers. Assume that this is a one time decrease and will not affect future sales to its regular customers. Should John’s Faucets now accept this offer to sell 300 faucets to Home Depot? PLEASE EXPLAIN WITH EXPLANATIONS

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter7: Production And Cost In The Firm

Section: Chapter Questions

Problem 3.8P

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John’s Faucets makes kitchen faucets which it sells to retail stores throughout the US. John’s Faucets sells on average 1,000 faucets to its regular customers each month. The average price of its faucets is $200.

As the manager of John’s Faucets, you have calculated the following average monthly total costs:

Rent $10,000

Cost of Materials for Faucets $60,000

Cost of Hourly Wages for $60,000

Labor to Produce Faucets

Shipping/Transportation $10,000

Insurance and Office Supplies $5,000

Interest on Loans $5,000

Salaries of Manager/Executives $15,000

And Salespeople

John’s Faucets recently learned of an opportunity to sell 300 faucets to Home Depot at a price of $150 per faucet. Assume that this is a one-time deal and that future sales are unlikely

Assuming that acceptance of this order would not affect normal sales of faucets and the additional 300 faucets can be manufactured without adding to plant capacity, should John’s Faucets accept this offer to sell 300 faucets to Home Depot?
Now, assume that the sale of 300 faucets to Home Depot would cause a decrease in the sale of 100 faucets to its regular customers. Assume that this is a one time decrease and will not affect future sales to its regular customers. Should John’s Faucets now accept this offer to sell 300 faucets to Home Depot?

PLEASE EXPLAIN WITH EXPLANATIONS

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