Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Chapter 5, Problem 5.1IP
To determine
The break-even
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Assume you have decided to buy an advertisement in the local newspaper to publicize your new pet grooming service. The cost of the ad is $1,000. You have decided to charge $40 for a dog grooming, and your variable costs are $20 for each dog. How many dogs do you have to groom to break even on the cost of the ad? What is your break-even point if you charge $60 per dog?
You are the chief financial officer for a firm that sells digital music players. Your firm has the following average-total-cost schedule: Your current level of production is 600 devices, all of which have been sold. Someone calls, desperate to buy one of your music players. The caller offers you $550 for it. Should you accept the offer? Why or why not. Single line text.
Habib Bank Limited estimates equation of demand of its product as:
Q = 55 – 0.5P - (where P = price and Q = Quantity of output),
and its total cost of production as
TC = 20 + Q + 0.2Q2 Where TC = total cost and Q = Quantity of output)
Write the equations of the firm’s costs, as a function of Q:
Average Total Cost ATC?
Average Variable Cost AVC?
Average Fixed Cost AFC.?
Marginal Cost MC?
The output level that will maximize total profit and the amount of revenue and profit that Habib Bank would receive at optimal level of production.?
The output level that minimizes average total cost.?
please answer all questions
Chapter 5 Solutions
Managerial Economics: A Problem Solving Approach
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- A firm that sells e-books - books in digital form downloadable from the Internet - sells all e-books relating to do-it-yourself topics (home plumbing, gardening, and so on) at the same price. At present, the company can earn a maximum annual profit of $45,000 when it sells 20,000 copies within a year's time. The firm incurs a 30-cent expense each time a consumer downloads a copy, but the company must spend $125,000 per year developing new editions of the e-books. The company has determined that it would earn zero economic profits if price were equal to average total cost, and in this case it could sell 20,000 copies. Under marginal cost pricing, it could sell 100,000 copies. In the short run, to the nearest cent, what is the profit-maximizing price of e-books relating to do-it-yourself topics?arrow_forwardGeorge’s T-Shirt Shop produces 5,000 custom printed T-shirts per month. George’s fixed costs are $15,000 per month. The marginal cost per T-shirt is a constant $4. What is his break-even price? What would be George’s break-even price if he were to sell 50% more shirts?arrow_forwardTim Marlow, the owner of The Clock Works, wanted to know how many clocks he must sell in order to cover his fixed cost at a given price. Tim knew that he had a fixed cost of $20,000 for equipment, taxes, and a bank loan. He also had a unit variable cost of $20 per clock for labor, materials, and promotional costs. If the price Tim charges for each of his clocks is $40, what is his break-even point quantity?arrow_forward
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