Production decisions of company

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Reference no: EM1316808

A company produces two main products: electronic control device3s and specialty microchips. The average total cost of producing a microchip is $300; the firm sells the chips to other high-tech manufacturers for $550. Currently, there are enough orders for microchips to keep its factory capacity full utilized. The company also uses its own chips in the production of control devices. The average total cost (AC) of producing such a device if $500 plus the cost of two microchips. (Assume all of the $500 cost if variable and AC is constant at different output Volumes). Each control device sells for an average price of $1,500.

Should the company produce control devices? Is this product profitable?

Reference no: EM1316808

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