Suppose you have invested in a factory that produces a new type of smart watch. Your investment cost in the factory was $12 million. The only thing the factory produces is this smart watch, and the learning curve is projected to follow the equation below, which gives the estimated cost of producing the uth unit. Y(u) = 125,000/u + 29, for u <= 125,000, and Y(u) = 30, for u >= 125,000. You sell the watch for $225. a. After how many production units will the unit sales revenue exceed the unit production cost? b. Suppose your firm has just completed producing 125,000 units and still has $7.3 million of the factory investment cost remaining to pay off. How many more units will you need to produce to breakeven (ignore the time value of money and interest costs)? c. Before you invested the $12 million, a contract manufacturer offered to manufacturer the watches for you at a unit cost of $145 each. How many units would you have had to sell to pay off the $12 million (again, ignoring interest)?
