Barbour Electric is considering the introduction of a new product. This product can be produced in one of several ways: (a) using the present assembly line at a cost of $20 per unit, (b) using the current assembly line after it has been overhauled (at a cost of $5,000) with a cost of $18 per unit; and (c) on an entirely new assembly line (costing $30,000) designed especially for the new product with a per unit cost of $15. Barbour is worried, however, about the impact of competition. If no competition occurs, they expect to sell 10,000 units the first year. With competition, the number of units sold is expected to drop to 6,000. At the moment, their best estimate is that there is a 40% chance of competition. They have decided to make their decision based on the first-year sales. (a) Develop a decision table showing the payoffs. (b) What decision should they make? Hint: develop an EOL table and make a decision based on this table.

Barbour Electric is considering the introduction of a new product. This product can be produced in one of several ways: (a) using the present assembly line at a cost of $20 per unit, (b) using the current assembly line after it has been overhauled (at a cost of $5,000) with a cost of $18 per unit; and (c) on an entirely new assembly line (costing $30,000) designed especially for the new product with a per unit cost of $15. Barbour is worried, however, about the impact of competition. If no competition occurs, they expect to sell 10,000 units the first year. With competition, the number of units sold is expected to drop to 6,000. At the moment, their best estimate is that there is a 40% chance of competition. They have decided to make their decision based on the first-year sales. (a) Develop a decision table showing the payoffs. (b) What decision should they make? Hint: develop an EOL table and make a decision based on this table.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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