Cooling systems II Carl is the lead engineer on a smart HVAC cooling system that works with minimal energy and is voice activated. Given the revolutionary nature of the system, it took many failed tries to create a system that actually worked, a cost of
$30,000 . Now each unit sells for $6500 and it costs $5000 in raw materials and labor to produce. Carl receives an order for four new units for a customer, but when he takes the order to his manager, the manager is enraged and asks Carl why he wanted to produce something at a loss. What costs would the manager be looking at to come to this conclusion?
The manager is most likely looking at the $30,000 in experimentation costs. Even though the amount is rather large, one should understand that at this point these costs cannot be recovered and stopping production would not change that. Instead, stopping production would cause the firm to lose out on the $1500 in profit (price-production costs).
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