6. A firm manufactures and markets a product that sells for Birr 20 per unit. Fixed costs associated with activity total Birr 40,000 a month, while variable cost per unit is Birr 10. A maximum of 10,000 units can be produced and sold. Required: a) Drive the TR, TC and Total profit functions. b) Sketch the TR, TC and Total profit functions in the same coordinate system. c) What is the Break-even point (in terms of quantity and sales volume)? d) Drives the new TC, Total profit functions given that FC is increased by Birr 10,000 a month, and calculate the new break-even point. e) Drive the new TC and Total profit functions given that unit variable costs is decreased by 20% and calculate the new Break-even point. f) Drive the new TR and Total profits functions given that the unit selling price increases by 20% and calculate the new break-even point. g) What is the relationship that you may inter from BEP& FC, P& BEP and V& BEP? h) Assume selling prince increases by 10% and at the same time V increases by 10% what is the effect of these changes on the BEP - calculate the new break-even point. What lesson can we drive from this? i) Suppose there is no any change in FC, V and P, What is the maximum profit the firm can generate, and at what level of output? j) Keeping P and FC constant, what is the maximum unit variable cost for the firm to break even (at its maximum output level)? k) Keeping all things as they are, what is the quantity level at which the company: i. Makes a profit of Birr 100,000? ii. Looses Birr 10,000? 1) Had there been no capacity limitation, how would your answer have changed in part (i)?

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

Chapter4: Extent (how Much) Decisions

Section: Chapter Questions

Problem 3MC

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6. A firm manufactures and markets a product that sells for Birr 20 per unit. Fixed costs associated with activity total Birr 40,000 a month, while variable cost per unit is Birr 10. A maximum of 10,000 units can be produced and sold. Required: a) Drive the TR, TC and Total profit functions. b) Sketch the TR, TC and Total profit functions in the same coordinate system. c) What is the Break-even point (in terms of quantity and sales volume)? d) Drives the new TC, Total profit functions given that FC is increased by Birr 10,000 a month, and calculate the new break-even point. e) Drive the new TC and Total profit functions given that unit variable costs is decreased by 20% and calculate the new Break-even point. f) Drive the new TR and Total profits functions given that the unit selling price increases by 20% and calculate the new break-even point. g) What is the relationship that you may inter from BEP& FC, P& BEP and V& BEP? h) Assume selling prince increases by 10% and at the same time V increases by 10% what is the effect of these changes on the BEP - calculate the new break-even point. What lesson can we drive from this? i) Suppose there is no any change in FC, V and P, What is the maximum profit the firm can generate, and at what level of output? j) Keeping P and FC constant, what is the maximum unit variable cost for the firm to break even (at its maximum output level)? k) Keeping all things as they are, what is the quantity level at which the company: i. Makes a profit of Birr 100,000? ii. Looses Birr 10,000? 1) Had there been no capacity limitation, how would your answer have changed in part (i)?

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