You Are Considering an Investment That Will Enable You to Produce

question 161

Essay

You are considering an investment that will enable you to produce a new product.Your market research has indicated that the probability that the new product will be extremely successful is .6 and the probability that it will only be moderately successful is .4.The estimated demand curve if the product is extremely successful indicates 100 units per week at a price of $10 and 300 units per week at a price of $8.If it is only moderately successful your demand curve indicates 50 units per week at a price of $10 and 70 units per week at a price of $8.Your fixed costs are $200 per week and your marginal costs are constant at $5 in this production range.Should you invest in the new product? If so,how should you price? What quantity do you expect to sell at that price? What is the expected profit?

---

Definitions:

Balance Sheet

A financial statement that shows a company's financial position, detailing assets, liabilities, and shareholders' equity at a specific point in time.

Income Statement

A financial report that summarizes the revenues, expenses, and profits/losses incurred during a specific period of time.

Liabilities

Financial obligations or debts that a company owes to others, which must be settled over time through the transfer of economic benefits.

Auditor

A professional who examines and verifies a company's financial statements and records to ensure accuracy and compliance with regulatory standards.