2. Superior Metals Company has seen its sales volume decline over the last few years as the result of rising foreign imports. In order to increase sales and hopefully, profits), the firm is considering a price reduction on uranium-a metal that it produces and sells. The firm currently sells 60,000 pounds of uranium a year at an average price of $10 per pound. Fixed costs of producing uranium are $250,000. Current variable costs per pound are $5. The firm has determined
2. Superior Metals Company has seen its sales volume decline over the last few years as the result of rising foreign imports. In order to increase sales and hopefully, profits), the firm is considering a price reduction on uranium-a metal that it produces and sells. The firm currently sells 60,000 pounds of uranium a year at an average price of $10 per pound. Fixed costs of producing uranium are $250,000. Current variable costs per pound are $5. The firm has determined
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:2. Superior Metals Company has seen its sales volume decline over
the last few years as the result of rising foreign imports. In order to
increase sales and hopefully, profits), the firm is considering a price
reduction on uranium-a metal that it produces and sells. The firm
currently sells 60,000 pounds of uranium a year at an average price
of $10 per pound. Fixed costs of producing uranium are $250,000.
Current variable costs per pound are $5. The firm has determined
that the variable cost per pound could be reduced by $.50 if
production volume could be increased by 10 percent (fixed costs
would remain constant). The firm' marketing department has
estimated the arc elasticity of demand for uranium to be – 1.5.
(a) How much would Superior Metals have to reduce the price of
uranium in order to achieve a 10 percent increase in the quantity
sold?
(b) What would the firm's (i) total revenue, (ii) total cost, and (iii)
total profit be before and after the price cut?
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