T.W. Smitty is confident that demand for his Smart Rap album will substantially exceed the break even point computed in Problem 6.3, so T.W. is contemplating having his album cut at a classier (and pricier) studio. The recording costs would rise to $9000. However, since this new studio works with very high volume, production costs would fall to $2 per vinyl album.
- a. What is the breakeven point for this new process?
- b. Compare this process to the process proposed in the previous problem. For what volume of demand should T.W. choose the classier studio?
T.W. Smitty, an emerging rapper, has reserved a recording studio for $5000 to cut his first album, called “Smart Rap.” The cost of recording the album is $5000 and copies are $5 apiece. If the vinyl albums are priced at $15 each, how many must be sold to break even? What is the breakeven point in dollars?
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