Integrative Laptop Case

Martinez Company’s relevant range of Production is 7,500 to 12,500 units. When it produces and sells 10,000 units, its unit costs are as follows:

We decided to decrease the price of mountain bike production from $134 per bike to $108. The difference of $26 for 11,000 units results in a saving of almost $300,000. In the meanwhile, we also decided to dump our finish goods inventory, incurring a loss of $175,000. We decided to increase our capacity from 20,000 to 27,500 and efficiency from 1,000,000 to 2,000,000. We want to avoid increasing capacity significantly in order to avoid low efficiency. At the same time we want to keep our wastage at a minimum. We reduced our retail margin for the bike and sports store to 20% while reducing the discount stores to 27%. These new retail margins

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.

In a profit maximizing firm when the marginal revenue is greater than marginal cost the firm should increase production. If there is extra production that increases revenue and doesn’t add to cost, then of course profits will increase. When there is increase revenue profits will go up, and with no additional cost to the increase. This is something that is very ideal to a business. When this happens it’s almost to perfect. Increase in profit with no cost to

PROBLEM 5-1. Variable and Full Costing: Sales Constant but Production Fluctuates [LO 1, 2, 3, 5] Spencer Electronics produces a wireless home lighting device that allows consumers to turn on home lights from their cars and light a safe path into and through their homes. Information on the first three years of business is as follows: 2011 Units sold Units produced Fixed production costs Variable production costs per unit Selling price per unit 15,000 15,000 $750,000 $ 150 $ 250 2012 15,000 20,000 $750,000 $ 150 $ 250 $220,000 2013 15,000 10,000 $750,000 $ 150 $ 250 $220,000 Total 45,000 45,000

* Use the profit maximization rule MR = MC to determine your optimal price and optimal output level now that you have market power. Compare these values with the values you generated in Assignment 1. Determine whether your price higher is or lower.)

12) Suppose a firm has $1500 in variable costs and $500 in fixed costs when it produces 500

They are thinking about making the movie available for download on the Internet, and they can act as a single-price monopolist if they choose to. Each time the movie is downloaded, their Internet service provider charges them a fee of $4. The Baxter brothers are arguing about which price to charge customers per download. The accompanying table shows the demand schedule for their film. Price of download Quantity of downloads demanded $10 0 $8 1 $6 3 $4 6 $2 10 $0 15 a. Calculate the total revenue and the marginal revenue per download. b. Bob is proud of the film and wants as many people as possible to download it. Which price would he choose? How many downloads would be sold? c. Bill wants as much total revenue as possible. Which price would he choose? How many downloads would be sold? d. Ben wants to maximize profit. Which price would he choose? How many downloads would be sold? e. Brad wants to charge the efficient price. Which price would he choose? How many downloads would be sold? Answer to Question: a. The accompanying table calculates total revenue (TR) and marginal revenue (MR). Recall that marginal revenue is the additional revenue per unit of output Price of download Quantity of downloads TR MR demanded $10 0 $0 $8 1 $8 $8 $6 3 $18 $5 $4 6 $24 $2 $2 10 $20 $-1 $0 15 $0 $-4 b. Bob would charge $0. At that price, there would be 15 downloads, the largest quantity they can sell. c. Bill would charge $4.

An alternative method for determining the profit-maximizing quantity is to determine where marginal costs equal marginal revenue. Instead of calculating profits for each level of sales, total variable costs and total revenue are calculated. Marginal costs and marginal revenues are calculated in the same manner as marginal profit, thereby determining the amount of change for each level of sales (Huter, 2012, p.2).

| a. target profit + fixed expenses / contribution margin per unit 16060 + 345290 / 80.3 = 4500 contr margin = selling price - variable expenses 110-29.70= 80.3 contr margin b. target profit + fixed expenses / contribution margin per unit 40150 + 345290 / 80.3 = 4800 contr margin = selling price - variable expenses 110-29.70= 80.3 contr margin

Profit maximisation in the short run occurs when marginal revenue is equal to marginal cost. This means the firm produces until the last unit produced has revenue equal to its cost and is shown in the diagram below.

In the problem, the ASU bookstore is selling t-shirts for $25. The setup fee is $550 and it cost $850 to produce 100 shirts. The questions I am solving for are: How much the bookstore is paying for each shirt and should the bookstore produce 500 t-shirts? I approached the problem by using my notes as a guide. I decided to use the cost function, profit function, revenue function, and break even analysis formulas to solve this problem. The key elements I pulled from the text are these equations:

The competitive strategy varies from one company to the other. Among different competitive strategies, I would recommend the owner of Small-town Computer to use the following strategies.

The Problem Statement ................................................................................................................ 3 Demand Estimation ....................................................................................................................... 3 Cost Estimation ............................................................................................................................. 4 Price Method Proposal

The marginal cost of an extra unit of output is the cost of the additional inputs essential to produce that output. The marginal cost is the derivative of total production costs with respect to the level of output.