Reference no: EM132668328
You have two facilities, one in Malaysia and one in Indonesia.
Your firm manufactures flat-screen video monitors that are sold to a major laptop producer who pays $50 per screen. The major laptop producer has said they will take as many screens as you want to sell at that price.
The variable cost curve in the Malaysian plant is described as follows:
VCM = q + .0005*q2 , where q is quantity produced in that plant per month.
The variable cost curve in the Indonesian plant is described by
VCI = .5q + .00075q2, where q is the quantity produced in that plant per month.
The fixed cost per month of the Malaysian plant (when amortized over many years) is $900,000. The fixed cost per month of the Indonesian plant is higher (since it is more modern) at $1,000,000.
The fixed costs of each are sunk.
Questions:
1. Given you can sell as many of these screens as you want for $50 per screen, how many units to you want to produce in Malaysia? How many do you want to produce in Indonesia? What is the average variable cost in Malaysia? What is the average variable cost in Indonesia? Show your work.
2. There is another major laptop manufacturer that says they will pay you $60 per screen. Without recalculating your answers to 1, how should you change your production in each plant? Which of the following are true:
a. You should increase output in both, but increase by more in Malaysia than in Indonesia.
b. You should increase output in both, but increase by more in Indonesia than in Malaysia.
c. You should increase both by exactly the same amount
Explain your answer below.
3. The Malaysian government imposes a tax on each screen produced in Malaysia. Without recalculating, how should you change your production in each plant, which of the following are true (4 points):
Malaysian Plant (circle one): Increase Decrease Keep the same
Indonesian Plant (circle one): Increase Decrease Keep the same
Explain your answers below.
4. Instead of the creating a more modern manufacturing plant in Indonesia, you could have built another plant very similar to the one in Malaysia (i.e., one with the same variable cost curve as your current plant in Malaysia), with a fixed monthly cost of $900,000. Should you have just built another plant like the one in Malaysia? Why or why not. Provide any values of certain variables that support you case.
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