Wilson Partners manufactures thermocouples for remote temperature monitoring of electronics applications. The current system has a fixed cost of $400,000 per year and a variable cost of $10 per unit. Wilson sells the units for $14 each. A newly proposed system will add on-board features that allow the revenue to increase to $16 per unit, but the fixed cost will now be $600,000 per year. The variable cost of the new system will be based on a $48 per hour rate with 0.2 hour dedicated to produce each unit. Plot the two profit relations and estimate graphically the breakeven quantity between the current and proposed systems. Comment on your estimate.
What will be an ideal response?
Current: Profit = 14Q -400,000 - 10Q = 4Q -400,000
New: Profit = 16Q - 600,000 - 9.60Q = 6.4Q - 600,000
Profit curves cross at approximately 83,000 units. Note that the profit is negative for
both systems at this point
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