ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Your firm specializes in recycling used plastics into consumer goods. You have three production opportunities:

1. You can produce plastic utensils for a revenue of $30,000 while production will cost $15,000.

2. Alternatively, you can produce lampshades: you calculate that at the optimal production, you expect to sell 2,000 lampshades every year at $10 each, and your average total cost per lampshade will be $2.

3. You also have the option to shut down your factory and produce nothing at a cost of $1,000 a year.

Which opportunity do you choose?

 

4 Instead of working hard, Kendall Square Inc’s manager can shirk and not improve costs. In order to incentivize her hard work, Kendall Square Inc’s shareholders want to give the manager a bonus if they see that variable costs are cut by half.

What is the maximum bonus that shareholders would be willing to give?
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