Question

Your company sells a variety of NFL logo t-shirts for various teams for $15. Your rental cost of the silk-screening equipment is $150,000 per year and you incur $18,000 in typical setup costs for any production run of an individual t-shirt pattern. The incremental costs per shirt are $8. You just printed a batch of highly-demanded Pittsburgh Steelers shirts and are considering printing up a batch of Tennessee Titans shirts, but it appears that demand for Tennessee Titans shirts has dropped from 6,000 units to 3,000 units. Should you go ahead and print the Tennessee Titans shirtsWhat is the profit-maximizing number of T-shirts that Sport Tee should produce and sell each month?

Answer 1

Answer:

The company should print the 3,000 units of Tennessee  as they will yield a gain for 3,000 dollars.

Because it faces economies of scale it should sale for as much as it can from a given pattern

Explanation:

Profit: revenue - variable cost - fixed cost

Profit =   15*Q - 8*Q - 18,000

Profit =          7Q- 18,000

3,000 Tennessee shirts x $7 contribution per shirt - 18,000 setup cost

profit: 21,000 - 18,000 = 3,000

Profit maximization: Marginal revenue = marginal cost

Total Revenue: 15 x Q

dTR' /dQ = 15

dTR''/dQ = 0

cost function: 18,000 + 7Q

dC'/dQ = 7

dC''/dQ = 0

Sport Tee faces a economie of scale their cost do not increase over time. Sport Tee should sale as many shirt as it possible can