Anton Valve Company Produces a Mechanical Valve Used in Water

question 118

Essay

Anton Valve Company produces a mechanical valve used in water systems.Three years ago the company introduced an electronic version of the valve.Sales of the mechanical model have steadily declined,and the company will report a loss on the product this year as follows:
$\begin{array}{lr}\text { Sales revenue } & \$ 200,000 \\\text { Less costs: } \\\text { Unit-level manufacturing costs } & \$ 157,500 \\\text { Batch-level costs } & 2,500 \\\text { Product-level costs } & 5,000\\\text { Facility-level costs } & 30,000 \\\text { Allocated corporate costs } & \underline{11,500} \\\text { Total costs } &\underline{ 206,500}\\\text { Net loss } &\underline{ \$(6,500)}\end{array}$ If production of the mechanical valve is discontinued,product-level costs will be eliminated but facility-level and corporate costs would not be affected.
Required:
1)Prepare a quantitative analysis that indicates whether the valve should be discontinued.
2)What qualitative factors should be considered in this decision?

---

Definitions:

Dominant Strategy

A strategy in game theory that is the best for a player, regardless of what strategies the other players choose.

Firm A

A placeholder name often used in economics and business scenarios to denote a specific, but unnamed, company.

Prisoners' Dilemma

A scenario in game theory where individuals acting in their own self-interest produce a worse outcome than if they had cooperated, illustrating challenges in achieving the best collective outcome.

Dominant Strategy

A strategy that is best for a player in a game, regardless of the strategies chosen by other players.