You Are the Manager of a Firm in a New

question 28

Essay

You are the manager of a firm in a new industry. You have gotten the jump on the only other producer in the market. You know what your competitor's cost function is, and it knows yours. Your products, although different to experts, are indistinguishable to the average consumer. Your marketing research team has provided you with the following market demand curve: Q = 1,250 - .5P. Your cost function is C_A(Q_A) = 8Q_A. Your competitor's cost function is C_B(Q_B) = 6Q_B. Your diligent effort will allow you to decide how much of your product to provide and will allow you to place it on the market shortly before your competitor will be able to make its product available for sale. What output level will you choose, and what price will you charge? Explain.

---

Definitions:

Manufacturing Overhead Account

An account that accumulates all indirect costs associated with the production process, excluding direct materials and direct labor costs.

Work in Process

Inventory that includes materials that have been partially processed but are not yet complete finished goods in a manufacturing setting.

Machine-Hours

A measurement of the time a machine is operated, used in costing to allocate expenses based on machine use.

Manufacturing Overhead

A rephrased definition: All indirect costs incurred during the production process, which are not directly traceable to individual products.