Discontinuing a Missile Program

Essay

Discontinuing a Missile Program
Merowak Missiles has developed its Democratizer Offensive Weapon System (DOWS)for the US military.After sinking $1 billion into R&D and design,it spent $0.5 billion building the tools and production facility that are unique to DOWS production.It houses these in standard factory floor space that costs $1 million.Each missile has a marginal cost of $2,000.The Pentagon is thinking of discontinuing the program because the missiles are too expensive.If Merowak were to get an order for 50,000 missiles,what would its breakeven price be?