The Management of a Company Is Considering Three Possible New

question 4

Essay

The management of a company is considering three possible new products for next year's product line.A decision now needs to be made regarding which products to market and at what production levels.Initiating the production of two of these products would require a substantial start-up cost,as shown in the first row of the table below.Once production is under way,the marginal net revenue from each unit produced is shown in the second row.The third row gives the percentage of the available production capacity that would be used for each unit produced. Only 3 units of product 1 could be sold,whereas all units that could be produced of the other two products could be sold.The objective is to determine the number of units of each product to produce in order to maximize the total profit (total net revenue minus start-up costs).(a)Assuming that production quantities must be integers,use dynamic programming to solve this problem.(b)Now consider the case where the divisibility assumption holds so that the variables representing production quantities are treated as continuous variables.Assuming that proportionality holds for both net revenues and capacities used,use dynamic programming to solve this problem.

Understand the relationship between Progressive reforms and the establishment of economic and social policies.

Understand the concept of market power and its effects on societal welfare.

Analyze the phenomenon of X-inefficiency and its occurrence in different types of markets.

Grasp the reasons behind the economic inefficiency of single-price monopolies.

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Definitions:

Marginal Cost

Marginal cost is the cost incurred by producing one additional unit of a product or service.

AVC

Average Variable Cost, which is the total variable costs (costs that change with the level of output) divided by the quantity of output produced.

Shut Down

The temporary or permanent cessation of operations, often referring to business closure due to economic events or strategic decisions.

Purely Competitive Seller

Describes a market situation where a large number of sellers offer identical products, and no single seller can influence the market price.