Analyze for which quantity it is optimal to use technology

Assignment Help Microeconomics

Reference no: EM13182577

In 1986, John Deere was building a capital intensive factory to produce large, four-wheel-drive farm tractors. Then the price of wheat dropped dramatically, reducing demand for these tractors because they are used extensively for harvesting wheat. John Deere stopped construction of its own factory and attempted to purchase Versatile, a Canadian company that assembled tractors in a garage using off-the-shelf components. We can characterize John Deere' decision as a choice of one manufacturing technology over another.

You need to analyze for a hypothetical example whether John Deere should use Technology 1 (Own Production), Technology 2 (Versatile), or whether it should stop producing four-wheel-drive tractors based on the quantity the company predicts it would sell in the market.

The following information regarding prices and technologies should be used to analyze this case (all numbers are in thousands):

Technology 1: Fixed cost of $200 and marginal cost of $10.

Technology 2: Fixed cost of $150 and marginal cost of $20.

John Deere can sell a tractor for $30 (all numbers are in thousands).

1. Calculate the break even quantity for technology 1.

2. Calculate the break even quantity for technology 2.

3. Represent the total cost of technology 1, the total cost of technology 2, and the total revenue in a graph in which you place the quantity on the horizontal axis and the total cost / revenue on the vertical axis (create the graph using Powerpoint).

4. Analyze for which quantity it is optimal to use technology 1, for which technology 2, and in which circumstances it is optimal to abandon production

Reference no: EM13182577

Questions Cloud

Define the term spontaneous protective response : Define the term Spontaneous Protective Response. Describe why Spontaneous Protective Response occurs and provide at least two measures that emergency planners can take to avoid the adverse effects of Spontaneous Protective Response on the part of the..

Limitation of break-even analysis : Plot the date of your answer to above inthe form contribution sales graph known as profit volume graph. and to comment on the result shown and state the break- even point.

Federal emergency management agency : The Federal Emergency Management Agency (FEMA) creates Several mechanisms for communicating with the public

Calculate the sales-volume variance for each product : Calculate the sales-volume variance for each product and in total and calculate the sales-mix variance for each product and in total.

Analyze for which quantity it is optimal to use technology : You need to analyze for a hypothetical example whether John Deere should use Technology 1 (Own Production), Technology 2 (Versatile), or whether it should stop producing four-wheel-drive tractors based on the quantity the company predicts it woul..

Estimating uncollectible accounts under the allowance method : Explain how Magrath should account for and report the accounts receivable factored on April 3, 2007. Why is this accounting treatment appropriate?

Describe current parole and mandatory release policies. : What is parole? How does parole differ from mandatory release? Describe current parole and mandatory release policies. Is there a better solution to the current parole process?

Calculate the firms short-run average cost : A perfectly competitive painted necktie industry has a large number of potential entrants. Each firm has an identical cost structure such that long-run average cost is minimized at an output of 20 units (qi=20). The minimum average cost is $10 per..

Explain the presence of a double or triple bond : How would the presence of a double or triple bond help to determine the geometric shape of a molecule?

User Account

All Pages