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Fall 2017


Topnotch Protection Corporation is an American company that manufactures cost-effective protective covers for
smartphones made out of innovative composite material, which currently are being sold only in the United States.
Topnotch currently produces and sells 100,000 protective covers a month and operates its one factory at 60 percent
capacity. At that output, the average total cost (ATC) of manufacturing a protective cover is $20.00. Experience has
shown that the ATC decreases as output is expanded beyond 100,000 units per month but rises again if output is
increased above 125,000 units per month.

Topnotch Protection Corporation normally sells its protective covers domestically for $25.00 each. It recently
received an order for an additional 10,000 protective covers per month from a buyer in a foreign country where
Topnotch would like to do business. This buyer specified that it would pay no more than $15.00 per protective
cover. The firms accountants estimate that at 110,000 units a month, the ATC of producing a protective cover
would be $19.00. Topnotch executives want to accept the order.


1. Draw the firms ATC curve and fit the MC curve to it. Then estimate MC at Q = 110,000. Use the profit-
maximizing rules (assume P = MR for this paper) to answer the following questions:
a. Should Topnotch accept the offer?
b. If they accept the offer, will their profit rise or fall? By how much?
c. Are the accountants correct in their analysis? What would the production manager say?
d. Could the firm fill this order in their existing plant? Or, must expansion take place?
e. What changes in workforce, staffing, and procuring raw materials might be required to fulfill this
2. Whether this order is profitable or not, would it make sense to accept the order in order to expand into an
international market?


Write up your answers in a minimum of two pages and a maximum of three pages, with a staple in the upper left
corner, double spaced, size 12 type, Times-Roman font, with 1 inch margins at the top, sides, and bottom of each
page. No cover page; title of paper and your name and date centered at the top of page one. Show all calculations
and your production graph. Paper is due December4, 2017. Turn in 2 printed copies in person, in class.

You start with a zero, but can achieve a maximum of 100 points. You will fail to acquire a lot of points for:

Erroneous (or inadequate) answers to the questions. Lose 30 points for a wrong answer to 1a.

Incomplete report

Short paper

Not following the rules


Poor use of English

Late paper