Katie\'s Quilts is a small retailer of quilts and other bed linen products. Kati
ID: 1092052 • Letter: K
Question
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 at 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 $20,000 and she can produce quilts at $50 per quilt her total cost of producing quilts, q5 herself is 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.)Explanation / Answer
assume Katie neends to sell K quilts to make vertical integration a profitable decision,
money earned by selling K
so cost involved= 20000 + 50K,
if she purchase K qulits from larger producer at cost $60,
so cost involved
60 K = 20000 + 50K
10 K = 20000
K= 2000
SO SHE MUST SELL MORE THAN 2000 QUILTS TO MAKE VERTICAL INTEGRATION PROFITABLE,
FOR VERTICAL INTEGRATION TO BE PROFITABLE SHE MUST SELL ATLEAST ONE MORE THAN 2000 QUILTS, WHICH MEANS SHE MUST SELL ATLEAST 2001 QUILTS
ANSWER
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