Activity 2 Economics

PROFITABILITY ANALYSIS 1 Profitability Analysis Iddisah Sulemana September 9, 2023

PROFITABILITY ANALYSIS 2 Profitability Analysis Question 1- Break even point Break-even Price Calculation Break − even Price = ¿ Costs + ( Marginal Cost ∗ Quantity of Units Sold ) Quantity of Units Sold Break − even Price = 50000 +( 5 ∗ 10000 ) 10000 =$10.00 per copier This indicates that, to cover all costs without accruing a profit or a loss, the selling price should be set at this amount. After 70% increase, Break − even Price = 50000 +( 5 ∗ 17000 ) 17000 = $7.94 per copier This indicates a decrease in the unit price necessary to break even, confirming the principle of economies of scale, where an increase in production tends to decrease the unit cost. Question 2- Profitability Analysis To ascertain the profitability of the investment, we utilize the Net Present Value (NPV) NPV = ∑ t = 1 4 20000 ( 1 + 0.15 ) t − 70000 ¿ − $ 12,900.43

PROFITABILITY ANALYSIS 4 scarcely covering its variable costs, leaving a meager portion to offset the fixed costs. This course is unsustainable, and thus, the firm needs to contemplate serious modifications to its operational strategy (Mathews, 2006). In the short term, it's crucial to examine avenues to cut both variable and fixed costs and seek ways to augment revenue. If these measures don't yield better financial prospects, the company may need to contemplate downsizing or temporarily pausing operations to prevent additional financial setbacks.

PROFITABILITY ANALYSIS 5 References Tey, Y. S., & Brindal, M. (2015). Factors influencing farm profitability.  Sustainable Agriculture Reviews - Volume 15 , 235-255. Mathews, J. A. (2006).  Strategizing, disequilibrium, and profit . Stanford University Press.