managerial economics 4

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Last year a toy manufacturer introduced a new toy truck that was a huge success. The company invested $2.5 million for plastic injection molding machine. (which could be sold for $2.0 million) and 100000 in plastic injection molds specifically for the toy (not valuable to anyone else). Labor and cost of material necessary to make each truck is about $3.00. 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 continue production of the toy truck. If the estimated demand is 100000 trucks, what is the breakeven price for the toy trucks? Should you shut down?

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