REVIEW AND PRACTICE EXERCISES #3.1. DRAM FACTORY. You own and operate a facility located in Taiwan that manufac tures 6-4-megabit dynamic random-access memory chips (DRAMS) for personal comput ers (PCS). One year ago you acquired the land for this facility for $2 million, and used 83 million of your own money to finance the plant and equipment needed for DRAM manufacturing. Your facility has a maximum capacity of 10 million chips per year. Your cost of funds is 10% per year for either borrowing and investing. You could sell the land, plant, and equipment today for $8 million; you estimate that the land, plant, and equip ment will gain 6% in value over the coming year. (Use a one-year planning horizon for this problem.) In addition to the cost of land, plant, and equipment, you incur various operating expenses associated with DRAM production, such as energy, labor, raw materials, and packaging. Experience shows that these costs are $4 per chip, regardless of the number of chips produced during the year. In addition, producing DRAMs will cause you to incur fixed costs of $500k per year for items such as security, legal, and utilities. a stations of a ho (a) What is your cost function, C(q), where q is the number of chips produced during the year? Assume now that you can sell as many chips as you make at the going market price per chip of p. (b) What is the minimum price, p, at which you would find it profitable to pro- duce DRAMS during the coming year?
REVIEW AND PRACTICE EXERCISES #3.1. DRAM FACTORY. You own and operate a facility located in Taiwan that manufac tures 6-4-megabit dynamic random-access memory chips (DRAMS) for personal comput ers (PCS). One year ago you acquired the land for this facility for $2 million, and used 83 million of your own money to finance the plant and equipment needed for DRAM manufacturing. Your facility has a maximum capacity of 10 million chips per year. Your cost of funds is 10% per year for either borrowing and investing. You could sell the land, plant, and equipment today for $8 million; you estimate that the land, plant, and equip ment will gain 6% in value over the coming year. (Use a one-year planning horizon for this problem.) In addition to the cost of land, plant, and equipment, you incur various operating expenses associated with DRAM production, such as energy, labor, raw materials, and packaging. Experience shows that these costs are $4 per chip, regardless of the number of chips produced during the year. In addition, producing DRAMs will cause you to incur fixed costs of $500k per year for items such as security, legal, and utilities. a stations of a ho (a) What is your cost function, C(q), where q is the number of chips produced during the year? Assume now that you can sell as many chips as you make at the going market price per chip of p. (b) What is the minimum price, p, at which you would find it profitable to pro- duce DRAMS during the coming year?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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REVIEW AND PRACTICE EXERCISES
3.1. DRAM FACTORY. You own and operate a facility located in Taiwan that manufac
tures 64-megabit dynamic random-access memory chips (DRAMS) for personal comput
ers (PCS). One year ago you acquired the land for this facility for $2 million, and used
83 million of your own money to finance the plant and equipment needed for DRAM
manufacturing. Your facility has a maximum capacity of 10 million chips per year. Your
cost of funds is 10% per year for either borrowing and investing. You could sell the land,
plant, and equipment today for $8 million; you estimate that the land, plant, and equip
ment will gain 6% in value over the coming year. (Use a one-year planning horizon for
this problem.)
In addition to the cost of land, plant, and equipment, you incur various operating
expenses associated with DRAM production, such as energy, labor, raw materials, and
packaging. Experience shows that these costs are $4 per chip, regardless of the number
of chips produced during the year. In addition, producing DRAMs will cause you to
incur fixed costs of $500k per year for items such as security, legal, and utilities.
(a) What is your cost function, C(q), where q is the number of chips produced
during the year?
dove at foval tugtuo ga
Assume now that you can sell as many chips as you make at the going market price per
chip of p.
(b) What is the minimum price, p, at which you would find it profitable to pro-
duce DRAMS during the coming year?
contigi
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