Assignment task: Amy's Kitchen is a small producer of plant-based meat products. Because of the increasing demand for her products, she is planning to add a new machine to the production process. She has identified two production processes, A and B.
For process A, fixed costs = $40,000 and a variable cost per unit of V = $10
So, the short-run cost function for process A is: TCA = 40,000 + 10 V
For process B, fixed costs = $30,000 and a variable cost per unit of V = $11
So, the short-run cost function for process B is: TCB = 30,000 + 11 V
Amy's Kitchen sells one of its popular products, Plant-Based Burgers, at a retail price of
P = $15 per unit to a Whole Foods supermarket.
Use the information provided to answer the following questions. Show all your work
? Compute the break-even point for each alternative production process in units.
? At what volume of output would the two alternatives yield the same profit?
? Suppose Amy has the goal of making a profit of $500,000. Determine the sales volumes required using processes A and B, to reach this target profit.
? If the expected demand is 12,000 units per month, which alternative would yield the higher profit