You are the marketing manager of the Business Unit (BU) that produces polystyrene (which is an input to making lightweight rigid foam). The current Demand/Supply balance, as measured by the ICIS price, is $800 per ton of polystyrene. The BU has 2 plants and can produce a total of 1800 tons. At full capacity utilization, the BU’s average variable cost equals $1300/t and its average total cost equals $1700/t. Plant 1 has a capacity of 600 tons and a marginal cost of $900/t. Plant 2 has capacity of 1200 tons and a marginal cost of $1500/t. Due to exit of one competitor, you expect next year’s polystyrene ICIS price to increase to $1200. 1. How much volume of polystyrene do you expect to produce next year, if any? 2. What is your expected contribution margin for next year? 3. What is your expected profit for next year?
You are the marketing manager of the Business Unit (BU) that produces polystyrene
(which is an input to making lightweight rigid foam). The current Demand/Supply
balance, as measured by the ICIS price, is $800 per ton of polystyrene. The BU has 2
plants and can produce a total of 1800 tons. At full capacity utilization, the BU’s
variable cost
Plant 1 has a capacity of 600 tons and a marginal cost of $900/t. Plant 2 has capacity of
1200 tons and a marginal cost of $1500/t. Due to exit of one competitor, you expect next
year’s polystyrene ICIS price to increase to $1200.
1. How much volume of polystyrene do you expect to produce next year, if any?
2. What is your expected contribution margin for next year?
3. What is your expected profit for next year?
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