5. Exercise 10.7 Royersford Knitting Mills, Ltd., sells a line of women's knit underwear. The firm now sells about 20,000 pairs a year at an average price of $40 each. Fixed costs amount to $240,000, and total variable costs equal $480,000. The production department has estimated that a 10 percent increase in output would not affect fixed costs but would reduce average variable cost by 40 cents. The marketing department advocates a price reduction of 5 percent to increase sales, total revenues, and profits. The arc elasticity of demand with respect to prices is estimated at -2. The proposal to cut prices by 5 percent would |$ and total profits would be $ total revenues from $800,000 to $ Total costs would be If average variable costs are assumed to remain constant over a 10 percent increase in output, total profits after a 5 percent price cut would be S

5. Exercise 10.7 Royersford Knitting Mills, Ltd., sells a line of women's knit underwear. The firm now sells about 20,000 pairs a year at an average price of $40 each. Fixed costs amount to $240,000, and total variable costs equal $480,000. The production department has estimated that a 10 percent increase in output would not affect fixed costs but would reduce average variable cost by 40 cents. The marketing department advocates a price reduction of 5 percent to increase sales, total revenues, and profits. The arc elasticity of demand with respect to prices is estimated at -2. The proposal to cut prices by 5 percent would |$ and total profits would be $ total revenues from $800,000 to $ Total costs would be If average variable costs are assumed to remain constant over a 10 percent increase in output, total profits after a 5 percent price cut would be S

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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