# 1. (20 points) Multiplant Operation.Hiro

1. (20 points) Multiplant Operation.Hiro Nakamura is CEO of the Cola King Bottling Company, a small regional producer operating in the Pacific Northwest. Nakamura is considering two alternative expansion proposals:Construct a single bottling plant in Phoenix, Arizona with a capacity of 40,000 cases per month, at a monthly fixed cost of \$20,000 and a variable cost of \$2.50 per case.Construct 3 plants, 1 each in Phoenix, Arizona; Las Vegas, Nevada; and Albuquerque, New Mexico, with capacities of 15,000, 14,000 and 13,000 respectively; and monthly fixed costs of \$11,000, \$10,000 and \$9,000 each. Variable costs would be only \$2.30 per case due to lower distribution costs, but sales from each plant would be limited to demand within the home state. The total estimated monthly sales volume in the southwestern states, 37,000 cases, is distributed as: Arizona, 15,000 cases; Nevada, 14,000 cases; and New Mexico, 8,000 cases.Using a wholesale price of \$4 per case in each state, calculate the breakeven output quantities for each alternative.Which alternative expansion scheme should Cola King follow?If sales increase to production capacities, which alternative would prove to be more profitable?2. (20 points) Short-run Market Supply.New Deli Credit Card Services, Inc., provides account balance and credit card information over the phone to credit card users in the United States. New Deli is a medium-sized service provider with the following total and marginal cost relations:where Q is the number of phone inquiries answered per month. Assume that MC > AVC at every point along the firms marginal cost curve, and that total costs include a normal profit.Derive the firms supply curve, expressing quantity as a function of price.Derive the market supply curve if New Deli is one of 400 competitors.Calculate market supply per month at a market price of \$8.75 per inquiry.

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