London, Inc

question 70

Essay

London, Inc. uses 2,000 units of Part 8G3 each year in the manufacture of one of its products. The company currently produces the part internally, but an outside supplier has offered to provide the part at a price of $15 per part. If London chooses to purchase the part from the outside supplier, one half of it’s the fixed manufacturing overhead will be eliminated. London’s standard unit cost of producing the part is listed below.

Required
Ignoring qualitative factors, should London continue to make the parts internally or purchase them from the outside supplier? Why?

Identify the conditions under which a monopolist would increase, decrease, or maintain current output levels for profit maximization.

Analyze the effect of government interventions, such as taxes, on the monopolist's pricing and production decisions.

Understand the concept of elasticity of demand in the context of monopoly pricing and how it impacts revenue and output decisions.

Evaluate the impact of cost structures, including fixed and variable costs, on the monopolist's profit.

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Definitions:

Fear

A negative feeling resulting from the assumption that a person or object poses a risk, potential harm, or is menacing.

Joy

A feeling of great pleasure and happiness.

Frontal Lobe

The part of the brain located at the front of each cerebral hemisphere, responsible for executive functions, decision making, movement, and speech.

Positive

Characterized by or displaying an optimistic, constructive, or affirmative nature or outcome.