Ali bey has a small manufacturing firm at the Organize Sanayi. One of his customers asks him if he could make a new product, called zamazingo, for them. Ali bey thinks, he needs to buy an zamazingo machine for production. He could buy the machine from Germany, Expo Co. Expo Co. sells the machine for €10,000. The current exchange rate is €1 = 6,30 TL. The machine uses advanced technology and its variable cost of producing zamazingo is not linear, but it is a function of yearly production. If the yearly production is Q units, then the per unit variable cost is 8 – LOG(Q) TL. Note that the variable cost is in TL, but the fixed cost is in €’s. a) What is the break-even quantity for this new product line, if Ali bey buys the machine from Expo Co.? b) If Ali bey thinks that he could sell only 5000 units next year, what would be the max €/TL, exchange rate that the investment is still viable (that is the break-even quantity will be 5000 units)? answer in 30 minutes.
Ali bey has a small manufacturing firm at the Organize Sanayi. One of his customers asks him if he could make a new product, called zamazingo, for them. Ali bey thinks, he needs to buy an zamazingo machine for production. He could buy the machine from Germany, Expo Co. Expo Co. sells the machine for €10,000. The current exchange rate is €1 = 6,30 TL. The machine uses advanced technology and its variable cost of producing zamazingo is not linear, but it is a function of yearly production. If the yearly production is Q units, then the per unit variable cost is 8 – LOG(Q) TL. Note that the variable cost is in TL, but the fixed cost is in €’s. a) What is the break-even quantity for this new product line, if Ali bey buys the machine from Expo Co.? b) If Ali bey thinks that he could sell only 5000 units next year, what would be the max €/TL, exchange rate that the investment is still viable (that is the break-even quantity will be 5000 units)? answer in 30 minutes.
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter11: Foreign Exchange, Trade, And Bubbles
Section: Chapter Questions
Problem 2MC
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Ali bey has a small manufacturing firm at the Organize Sanayi. One of his customers asks him if he could make a new product, called zamazingo, for them. Ali bey thinks, he needs to buy an zamazingo machine for production. He could buy the machine from Germany, Expo Co. Expo Co. sells the machine for €10,000. The current exchange rate is €1 = 6,30 TL. The machine uses advanced technology and its variable cost of producing zamazingo is not linear, but it is a function of yearly production. If the yearly production is Q units, then the per unit variable cost is 8 – LOG(Q) TL. Note that the variable cost is in TL, but the fixed cost is in €’s.
a) What is the break-even quantity for this new product line, if Ali bey buys the machine from Expo Co.?
b) If Ali bey thinks that he could sell only 5000 units next year, what would be the max €/TL, exchange rate that the investment is still viable (that is the break-even quantity will be 5000 units)?
answer in 30 minutes.
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