Draw the johnsons atc curve and fit the mc curve

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Reference no: EM132192535

Question: Johnson INC makes t-shirts, which are sold only in the United States. Johnson INC makes and sells 100,000 t-shirt a month and operates its one factory at 60 percent capacity. At that output, the average total cost (ATC) of manufacturing a t-shirt is $20.00. Experience has shown that the ATC decreases as output is expanded beyond 100,000 units per month but rises again if output is increased above 125,000 units per month.

Johnson INC normally sells it's t-shirts domestically for $25.00 each. It just received an order for an additional 10,000 t-shirts per month from a Egyptian buyer who Johnson INC would like to do business with. The Egyptian buyer said that he would pay no more than $15.00 per t-shirt. The Johnson INC's accountants estimate that at 110,000 units a month, the ATC of producing a t-shirt would be $19.00. The Johnson inc CEO wants to accept the order.

1) Draw the Johnsons ATC curve and fit the MC curve to it. Then estimate MC at Q = 110,000. Use the profit-maximizing rules (assume P = MR for this paper) to answer the following questions:

a) Should Johnson INC accept the offer?

b) If they accept the offer, will their profit rise or fall? By how much?

c) Are the accountants correct in their analysis? What would the production manager say?

d)Could the firm fill this order in their existing plant? Or, must expansion take place?

e) What changes in workforce, staffing, and procuring raw materials might be required to fulfill this order?

f) Whether this order is profitable or not, would it make sense to accept the order in order to expand into an international market?

Reference no: EM132192535

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