CASE STUDY 2 - HAEDOO CARS Haedoo is presently struggling to survive in the motor car industry. Competition is increasing and the company is plagued by overcapacity. Its capacity is two million units per year, but it is currently operating at only 70% of this level, and this is resulting in an annual loss of $480 million. Its profit contribution per unit is 25%. Haedoo has now set targets for its performance in two years time: it aims to reduce its capacity to 1.5 million units and operate at 80% of this level, it aims to have a profit of $800 million, and in order to achieve its target output and sell it, it aims to keep its prices the same, while reducing its level of unit variable costs to 90% of their current level by rationalizing its supply procedures and standardizing components. a) Calculate the target average level of price for Haedoo. b) Calculate the target level of unit variable costs. c) Calculate the target level of break-even output.

CASE STUDY 2 - HAEDOO CARS Haedoo is presently struggling to survive in the motor car industry. Competition is increasing and the company is plagued by overcapacity. Its capacity is two million units per year, but it is currently operating at only 70% of this level, and this is resulting in an annual loss of $480 million. Its profit contribution per unit is 25%. Haedoo has now set targets for its performance in two years time: it aims to reduce its capacity to 1.5 million units and operate at 80% of this level, it aims to have a profit of $800 million, and in order to achieve its target output and sell it, it aims to keep its prices the same, while reducing its level of unit variable costs to 90% of their current level by rationalizing its supply procedures and standardizing components. a) Calculate the target average level of price for Haedoo. b) Calculate the target level of unit variable costs. c) Calculate the target level of break-even output.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter10: Prices, Output, And Strategy: Pure And Monopolistic Competition

Section: Chapter Questions

Problem 3E

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