Question: Universal Dental Products, Inc. manufactures false teeth with a pliable base that allows one size to fit any mouth. A set of these dentures sells for $80. Fixed costs are $200,000 per production period and the profit contribution is 40 percent of price.

a. Determine the profit elasticity at output rates of 8,000, 10,000, and 12,000 units.

b. For the next production period, fixed costs will increase to $300,000 due to a major capital investment program, but the new and more efficient machinery will result in lower variable production costs so that variable cost per unit will be reduced by $8. If price is unchanged, recompute the profit elasticity at output rates of 8,000, 10,000, and 12,000 units.

c. What change in the risk-return trade-off has the company made by this capital investment program?