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1. The Berwyn Company is considering the addition of a new product to its product line. The firm has plenty of excess manufacturing capacity to produce the new product, and its total fixed cost would be unaffected if the new product were added to its line. Nonetheless, the firm’s accountants decide that a reasonable share of the firm’s present fixed costs should be allocated to the new product. Specifically, they decide that a $300,000 fixed charge (cost) will be absorbed by the new product. The variable cost per unit of making and selling the new product is $14, which is composed of the following:

Direct labor $8.20
Direct materials $1.90
Other $3.90
Total $14.00 a. Should the Berwyn Company add the new product to its line if it can sell about 10,000 units at a price of $45? Explain. (5 points) b. Should it add the new product to its line if it can sell about 10,000 units at a price of $25? Explain. (5 points) c. Should it add the new product to its line if it can sell about 10,000 units at a price of $20? Explain. (5 points) d. What is the minimum price (that the firm can get for the new product) that will make it worthwhile to add the new to its line? (5 points)

2. In early 1995, there was a sharp increase in the price of newsprint, the paper used by newspapers. Since newsprint is the second-largest expense for American newspapers (after salaries), publishers were concerned about the price hike. Suppose that the demand for newsprint can be represented as follows:

Q1 = 17.3 - .0092P + 0.0067I, where Q1, equals the quantity demanded (in kilograms per capita), P is the price of newsprint (in dollars per metric ton), and I is income per capita (in dollars). (a) If there are 1 million people in the market, and if per capita income equals $10,000, what is the demand curve for newsprint? (5points) (b) Under these…...

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