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ADM 2302 Chapter 1: 1. Week 1 Extra Problems Solution

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School
University of Ottawa
Department
Administration
Course
ADM 2302
Professor
Rim Jaber

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Document Summary

If q units are produced per month, then. Monthly profit = sh {if q = 0} and ,000 + ( )q {if q > 0}. Break-even point = ,000 / ( ) = 2000, to produce if q > 2000. so it will be profitable. 1. 3: let q be the number of units produced and sold. Profit = [0 if q = 0] and [-,000 + * min(q, s) q if q > 0]. c: q s. 1. 5: break-even point = (,000,000) / ( ) = 25,000: maximize profit = sh {if q = 0} and ,000,000 + q. {if q > 0} subject to 0 q s. d) 10,00020,00030,000 q million million million million millionrevenue = qcost = ,000,000+ qbreak-even point = 25,000 units1234567abcdedataresultsunit revenue,700total revenue,000,000fixed cost,000,000total fixed cost,000,000marginal production cost,300total variable cost,000,000sales forecast30,000profit (loss),000,000production quantity30,000break-even point25,000e) They should produce the motors internally: break-even point = ,000,000 / (,000 - ,600) = 2,500.

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Related Questions

Concepts: Variable cost Fixed cost Total cost Average total cost Marginal cost

Total revenue Average revenue Marginal revenue Demand Curve

1. Mark Sampson, President of Sampson Switch Company must consider the pricing and production for the Ultra Switch Model B, one of the company’s top selling models. Switch production includes grinding and assembly of finished components. Marketing efforts consist primarily of print ads in trade publications. Last year the Model B produced a profit of $8,000.

Production facts. Sampson hires part time workers on an “as needed” basis to do the grinding task. On average, a grinder is paid $8.00 per hour and s/he is expected to produce 200 switch plates per each 8-hour day. Switch assemblers, also part-time workers, are paid $50 per day and they are expected to assemble 5 switches per hour. Each switch consists of two switch plates and assorted other components (the cost of the “other components” is $3.11 per switch).

Fixed Costs. Other costs include the year-long contract for the rental of the assembly line equipment ($1,000 per month).

Marketing facts. According to next year’s plan, Mark expects to place 10 black and white print ads (each $500) and two special feature, color ads (each $2,500) for the Model B. Salaries for the marketing sales force that are allocated to the Model B will total $18,000 next year.

1a. What is the cost to produce one switch? (i.e., the unit variable cost)?

1b. What and how much are the items composing the total “fixed” costs for next year?

1c. Graph the relationship between quantity produced (on the X-axis) and Total Cost (on the Y-axis).

1d. How much is the per-unit contribution if the product is priced at $15 a unit?

1e. What was the profit last year? What will be the change in profitability for the Model B if the product is priced at $15 per unit and 2,500 units are sold?

1f. What is the breakeven point if the product is priced at $15? How many must be sold next year in order to produce the same profit level as last year?

1g. Assume that Mark has $50,000 in equity invested in the Model B line. How many units must be sold in order to return 25% on his equity?

2. Answer qs 1a-g assuming that the selling price is reduced to $10 and demand increases by a factor of four.

3. After much investigation, the marketing research department tells Mark that they expect the “demand curve” to be. Compare the expected demand with the breakeven point for each price point. Knowing this information, what price should Mark charge in order to maximize profits on the Model B ?

selling price units demanded break even point
$15

2,500

 ...
$10 10,000 ...
$9 13,000 ....
$8 14,000 .....
$7 15,000 .....

4a. Create a graph showing “Quantity Demanded” on the X-axis and “Total Revenue $” on the Y-axis for each of the five price–quantity demanded points listed in q 3 above.

4b. Create a graph that superimposes the Total Revenue for the five points of the “Demand Curve” on the “Breakeven” Chart of the Model B (note the $$ Y -axis will represent Total Revenue for the Demand curve and will represent Total Cost for the Breakeven chart). { 01.81 gif k&b785 g pees ]

1) When there is a competitive firm it will maximize profits at which output:

1. Total revenue and total cost are equal.
2 Total revenue exceeds total cost by the greatest amount.
3. Price exceeds average total cost by the largest amount.
4. The difference between marginal revenue and price is at a maximum.

2) Assume that QRS Corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. This corporation:

1. Should close down in the short run.
2. Is maximizing its profits.
3. Is realizing a loss of $60.
4. Is realizing an economic profit of $40.

3) In a purely competitive industry:

1. There will be no economic profits in either the short run or the long run.
2. Economic profits may persist in the long run if consumer demand is strong and stable.
3. There may be economic profits in the short run, but not in the long run.
4. There may be economic profits in the long run, but not in the short run.

4) Assume a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. The firm will:

1. Minimizes losses by producing at the minimum point of its AFC curve.
2. Maximizes profits by producing where MR = ATC.
3. Should close down immediately.
4. Should continue producing in the short run.

5) A constant-cost industry is one in which:

1. If 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth.
2. If 100 units can be produced for $100, then 150 can be produced for $300, 200 for $600, and so forth.
3. The demand curve and therefore the unit price and quantity sold seldom change.
4. The total cost of producing 200 or 300 units is no greater than the cost of producing 100 units.

I have a Marginal analysis assignment I needed help with in my Business Calculus course. We are asked to pick a a product to sell as if we started our own business, and I chose to sell sunglasses at the price of $10 per unit. Total fixed costs are $5,750 per month

The first requirement is that we construct a linear cost function, C(x), for the product. We can afford $200,000 in total costs per month, and I have to figure out how many units I am able to produce without going over that budget.

A.) I have to let x represent the quantity of units of the product demanded each month and let "p" represent the price per unit which I sell the product in dollars. The price-demand equation will be x=f(p) = 12500-50pp. Then I have to construct the revenue function, r(x), for the product. Without consideration for the budget, I need to determine the feasible range of units demanded per month. (smallest number of products I could feasibly sell and the largest number of products I could feasibly sell in a month with no limit on the budget.) Then, I need to find the profit function, p(x). Next I need to determine the break-even points and interpret the result.

B.) If my company is currently producing 4,000 units per month, I need to determine the marginal cost and marginal revenue at a production level of 4,000 units and interpret the results. I need to use the price-demand equation to find the price at which I would sell each unit when 4,000 units are being produced each month. Then I need to write a function for the elasticity of demand, e(p) and determine whether the demand is elastic, inelastic, or has unit elasticity at this price, and discuss how increasing or decreasing the price would affect the revenue.

C.)I then need to determine if I should increase or decrease production based on the analysis done so far, and determine the optimal production level that will maximize profits and explain how. What is the maximum profit? At what price should I sell each unit so that I can maximize profit? How did this price change affect the revenue, and draw conclusions about my business's optimal operations.