Back in 1973, there were tales in Detroit of an aborted conspiracy to consolidate all US
automobile production in the AJ. GetRich company. This monopoly is concerned about the recent
clamor for putting antipollution devices on cars, costing as muchas $1,000 per car. Mr. Rich, the
president is wondering whether he can pass along this extra cost to the customers or whether he will
have to take this extra costout of his profit. Thus, he called his favorite economic consultant, Professor
Sharppencil. Recently released FBI tapes, available under the Freedom of Information Act, reveal the
conversation between Mr. Rich and Professor Sharppencil.
Rich: In my job, there is a new headache every month. can't wait till reach retirement age next year.
What do you think about splitting the $1,000 fairly with the customers: we swallow $100 and increase
the sticker price by $ 900? After all, we have to do our share for clean air too.
Sharppencil: Things are a lot more complicated than you think, Mr. Rich
I was afraid you'd say that
Sharppencil: Now you are selling 10 Million cars a year at $5,000 a car. If you the car price at $6,000
you won't sell 10 Million. There'll be a lot of cheapskates who would say that with this price rise they'll
stretch that old jalopy another year. Fortunately, did a consumer study last year, and can now say
with confidence that the sales will drop to 8 Million.
Rich: That is horrible! You are not suggesting that we leave the price at $5,000 and take the $1,000 out
of my own hide!
Sharppencil: In that case, your profit will drop. figured all this out ona formula that even your vice-
presidents on manufacturing does not know about:
Total Cost 2.5 Billion + 20000 + 0.25 * 10-15 Q4
New Total Cost = 2.5 Billion + 3000 Q 0.25 * (After $1000)
where Q is the number of cars sold per year. Don't keep me guessing. What should I do?
Sharppencil: l'll go home and do few calculations and give you the pricing strategy to yield the maximum
profit. I'd also like to know the new price, the forecast of volume, and your new profit picture.
Sharppencil [to himself]: My students love to grind out formulas. I'll turn in formulas for Mr. Rich
anyway. He may not understand mathematics, but he is easily impressed.
PROVIDE THE ANALYSIS Sharppencil PROMISED
2. Given the processing times for three products A, B, and C below, determine witha Gantt chart the
make-span and cycle time for manufacturing two batches of A, 1ofB, and 1 of C for the following cases:
Zero-wait policy with sequence of AABC and sequence of BAAC.
Same as (a), but with no intermediate storage policy
Same as (a), but with unlimited storage policy
Processing times in hours
Assume zero cleanup times
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