Last year, a manufacturer introduced a new product that was a huge success. So the company made the decision to invest an additional $2.8 million for a plastic injection molding machine (which could be sold for $2.0 million) and $150,000 in plastic injection molds specifically for the product (not valuable to anyone else). Labor and the cost of materials necessary to make each product is about $2 each. Unfortunately, after making the investment a competitor developed a similar product that significantly reduced demand for the manufacturer’s product. Now, the original manufacturer is faced with some decisions and is asking for your advice. Assume that the estimated demand is 120,000 units. To provide this advice you should:
Determine the price where they would break even if they decided to continue producing.
Determine the shutdown price.
What advice would you give this manufacturer?