1.a) Firms maximize profits where MR=MC. In this case, the chart is as follows: Total Fixed Variable Total Average Marginal Quantity Cost Cost Cost Cost Cost Price Profit MR 0 40 0 40 x x 72 1 40 55 95 95 55 72 -23 -23 2 40 75 115 57.5 20 72 29 52 3 40 90 130 43.33 15 72 86 57 4 40 110 150 37.5 20 72 138 52 5 40 135 175 35 25 72 185 47 6 40 170 210 35 35 72 222 37 7 40 220 260 37.14 50 72 244 22 8 40 290 330 41.25 70 72 246 2 The firm will therefore produce 6 units. At this level, the marginal cost is $35 and the marginal revenue is $37. If any more units are produced, the marginal cost of those units will be higher than the marginal revenue. The profit at this level is $222. b) If the price is $52, the table looks as follows: Total Fixed Variable Total Average Marginal Quantity Cost Cost Cost Cost Cost Price Profit MR 0 40 0 40 x x 52 1 40 55 95 95 55 52 -43 -43 2 40 75 115 57.5 20 52 -11 32 3 40 90 130 43.33 15 52 26 37 4 40 110 150 37.5 20 52 58 32 5 40 135 175 35 25 52 85 27 6 40 170 210 35 35 52 102 17 7 40 220 260 37.14 50 52 104 2 8 40 290 330 41.25 70 52 86 -18 The firm in this situation will produce 5 units, because at this level the marginal revenue is 27 and the marginal cost is 25. If any more units are produced, the marginal revenue will be lower than the marginal cost. The profit at this level of production is $85. Total Fixed Variable Total Average Marginal Quantity Cost Cost Cost Cost Cost Price Profit MR 0 40 0 40 x x 28 1 40 55 95 95 55
1- The total unit cost = Total Variable Cost + Production Fixed Expenses + Advertising Expense + Selling and Administrative Expense = 3.23 + 1.20 + 0.30 + 0.19 = 4.92.
1. For financial accounting purposes, what is the total amount of product costs incurred to make 10,000 units?
The point of profit maximization for the firm in the given scenario occurs at a quantity of 8 units. At this point they have maximized their profit and as you can see to go beyond this point would cause the firm to incur economic losses.
In this paper I am going to explain some of the key terms that companies need to keep in mind when operating their business. First, we will start with marginal revenue, which is defined simply as the extra revenue that is made for each additional unit of a product that is sold. This is directly related to marginal cost, which is what it costs the company to make that additional unit of product.
Explain how a profit maximizing firm determines its optimal level of output, using marginal revenue and marginal cost as criteria:
| (Exhibit 9: Total Cost for a Perfectly Competitive Firm) If the market price is $4.50, the profit-maximizing quantity of output is _______ units.
Chapter 9 1. Two car manufacturers, Saab and Volvo, have fixed costs of $1 billion and constant marginal costs of $10,000 per car. If Saab produces 50,000 cars per year and Volvo produces 200,000, calculate the average fixed cost and average total cost for each company. On the basis of these costs, which company’s market share should grow in relative terms? Answer: Average total cost is average fixed cost plus marginal cost: ATC = FC/Q + MC. Volvo’s average fixed cost $1 billion/200,000 = 5,000 is much less than Saab’s average fixed cost $1 billion/50,000 = 20,000 due to producing more cars. Volvo’s average production cost $15,000 is lower than Saab’s of $30,000 by the difference in average fixed costs. Volvo’s
The revenue is $600,600*1.2= $720,720. The variable cost changes as sales increases and fixed cost stays the same, the gross profit is $175,500. After tax, the net income is $100,557.
Birth Company normally produces and sells 30,000 units of RG-6 each month. RG-6 is a small electrical relay used as a component part in the automotive industry. The selling price is $ 22 per unit, variable costs are $ 14 per unit. Fixed manufacturing overhead costs total $ 1, 50,000 per month, and fixed selling costs total $ 30,000 per month.
19. Refer to Figure 14-5. When market price is P3, a profit-maximizing firm's total costs
Appalachian Coal Mining believes that it can increase labor productivity and, there- fore, net revenue by reducing air pollution in its mines. It estimates that the marginal cost function for reducing pollution by installing additional capital equipment is MC = 40P where P represents a reduction of one unit of pollution in the mines. It also feels that for every unit of pollution reduction the marginal increase in revenue (MR) is MR =1,000 =10P. How much pollution reduction should Appalachian Coal Mining undertake?
As an example, if fixed costs are $100, price per unit is $10, and variable costs per unit are $6, then the break-even quantity is 25 ($100 ÷ [$10 − $6] = $100 ÷$4). When 25 units are produced and sold, each of these units will not only have covered its own marginal (variable) costs, but will have also have contributed enough in total to have covered all associated fixed costs. Beyond these 25 units, all fixed costs have been paid, and each unit contributes to profits by the excess of price over variable costs, or the contribution margin. If demand is estimated to be at least 25 units, then the company will not experience a loss. Profits will grow with each unit demanded above this 25-unit break-even level.
Question B: How many units per year must be sold with each process to have annual profits of $50,000 if the selling price is $6.95 per unit?