(Solution) IE 343 Fall 2011 Midterm 1 Name: (last) (first) 1. Lavazza Company Manufactures Espresso Machines. The Cost For Producing A Specific Model Is \$87 Per... | Snapessays.com

(Solution) IE 343 Fall 2011 Midterm 1 Name: (last) (first) 1. Lavazza Company manufactures espresso machines. The cost for producing a specific model is \$87 per...

For 1e, what's the difference between the optimal production level per week and the demand? and what's the rest of the problem? ThanksIE 343 Fall 2011

N

a

m

e

:

Midterm 1

(last)

(first)

1.

Lavazza Company manufactures espresso machines. The cost for producing a specific

model is \$87 per unit. In addition, the production line cost \$28,000 per week regardless

of the number of units produced. The price charged for each unit is estimated by the

relationship

p = 2000 –8x

, where

x

represents demand per week.

a.

At what demand will the unit price be \$0? (

3 points)

b.

What will be the unit price if the demand is 1 unit per week? (

3 points)

c.

Find the maximum revenue and the demand at maximum revenue (

6 points)

d.

Find the breakeven points (

6 points)

e.

What is the optimum production level per week to maximize profit and what will be

the corresponding revenue and the profit? (

6 points)

f.

On a single graph, draw the total revenue and total cost curves. Label the axes. On the

graph, highlight the values found in points c to e. (

11 points)

2.

You decide to start a savings account plan. Upon opening the account, you made an

initial deposit of \$1,000. For the next ten years you deposited \$100 per month. One year

after the last deposit, you start to receive annual payments from the plan for 10 more

years. The payments increase by 10% each year. The 1

st

payment amount you received is

\$1,000. In the 10

th

payment, you received the entire amount remaining in the account.

Assume that the effective annual interest rate is 12% and that the nominal interest rate is

compounded monthly.

a.

Draw a cash-flow diagram

(10 points)

b.

What will be the total amount in the account at EOY 10

(6 points)

c.

Calculate the last payment amount

(6 points)

d.

In case that the payments have no limited number of periods, what will be the number of

payments until the account will be empty (if the amount left in the account is lower than

one payment, add it to the last payment)?

(12 points)

e.

Solve (b) for effective annual interest rate of 12% and that the nominal interest rate

compounded continuously.

(6 points)

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