Shut down decisions

profilederkaw

Last year, a toy manufacturer introduced a new toy truck that was a huged success. The company invested $2.5million for a plastic injection molding  machine (which can be sold for $2.0 million) and $100,000 in plastic injection molds specifically for the toy ( not valuable to anyone else). Labor and the cost of materials necessary to make each truck is about $3. This year, a competitor has developed a similar toy that has significantly reduced demand for  the toy truck. Now the original manufacturer is deciding  whether they should continure production of the toy truck. If the estimated demand is 100,000 trucks, what is the break-even price for the toy truck? should you shut down?

 

Thank you.

    • 6 years ago
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