Question

FomeworK. Chapter T Homework Sav Score: 0 of 1 pt 16 of 20 (15 complete) HW Score: 75 % , 15 of 20 p Text Question 4.2 Question Help Katie's Quilts is a small retailer of quilts and other bed linen products. Katie currently purchases quilts from a large producer for $60 each and sells them in her store a a price that does not change with the number of quilts that she sells. Katie is considering vertically integrating by making her own quilts. If the fixed cost of vertically integrating is $30,000 and she can produce quilts at $50 per quilt, her total cost of producing quilts, q. herself is C 30,000 50a How many quilts does Katie need to sell for vertical integration to be a profitable decision? For vertical integration to be profitable, Katie must sell at least quilts. (Enter your response rounded to the nearest whole number)

Answer 1

Let the number of quilt produced by q

Total Cost of producing quilt = Fixed Cost + Variable Cost = 30000 + 50q

If Katie purchases the same amount of quilt, the cost of purchase = 60q

Let sales price be x

Revenue = Sales - Costs

Hence, Revenue if Kati produces quilt = xq - 30000 - 50q

Revenue if Katie purchases quilt = xq - 60q

Vertical integration is profitable when, Revenue from producing > revenue when purchased

=> xq - 30000 - 50q > xq - 60q

=> 60q - 50q > 30000

=> q > 3000

Hence, Katie must sell atleast 3000 quilt for vertical integration to be profitable