1. The following is cost information for the Creamy Crisp Donut Company. Entreprencur's potential earnings as a salaried worker= $50,000 Annual lease on building $22,000 Annual revenue from operations S380,000 Payments to workers S120,000 Utilities (clectricity, water, disposal) costs $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity $80,000 Entrepreneur's forgone interest on personal funds used to finance the business $6,000 Creamy Crisp A. has lower implicit costs, including a nomal profit, than its explicit costs. n Ecoaomic profit

1. The following is cost information for the Creamy Crisp Donut Company. Entreprencur's potential earnings as a salaried worker= $50,000 Annual lease on building $22,000 Annual revenue from operations S380,000 Payments to workers S120,000 Utilities (clectricity, water, disposal) costs $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity $80,000 Entrepreneur's forgone interest on personal funds used to finance the business $6,000 Creamy Crisp A. has lower implicit costs, including a nomal profit, than its explicit costs. n Ecoaomic profit

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter7: Economies Of Scale And Scope

Section: Chapter Questions

Problem 7.5IP

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Problem 1Advanced Electronics (AE) is a computer chip manufacturer. It has monthly fixed costs of $4,000,000. Its marginal costs are $1.00 per chip.Â· What happens if sales fall by 20% from 3,000,000 to 2.400.000 chips per month?â€¢ What happens to average fixed costs (AFC) per chip and the marginal costs per widget?â€¢ If sales fall by 20 percent from 3 million chips per month to 2,400,000 chips per month, what happens to the AFC per paper, the MC per paper, and to the minimum amount that you must charge to break even on these costs?Hint: Here Marginal Cost (MC) is constant, which implies that Average Variable Cost (AVC) is constant and equals MC. This does not imply Average Total Cost (ATC) is constant or has to equal MC. Total Cost (TC) = Fixed Cost (FC) + Variable Cost (VC). Divide through by the quantity Q, which implies TC/Q = FC/Q + VC/Q. This gives us ATC = AFC + AVC.Problem 2Assume that the cost data in this table are for a purely…
3. The fixed costs incurred by a small genetics research lab are $200,000 per year. Variable costs are $12,500 per research project.a. If the revenue per project is $30,000, what is the breakeven number of projects of this lab in a year to sustain its operations?b. Currently, the lab works on 20 projects a year. What is their profit at this level?c. If variable costs increase to $13,000 per research project, what is the new BEP? By how much will their profit increase or decrease?
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