Last month the ICE business sold 24,000 liters of ice cream. The variable cost per liter was €2.7 and the contribution of sales to covering the fixed cost was equal to with 25% of the revenue. Last month's profits were €10,000 (a) What was the cost function last month? (b) If a new supplier to the business ensures a reduction in variable costs by 0.4 € / liter, but at the same time it needs an increase in the monthly advertising expenditure by €3,000, what will the new cost function be? (c) If ICE can raise the price by 10%, what should its output be so that its profit to increase by 20%?
Last month the ICE business sold 24,000 liters of ice cream. The variable cost per liter was €2.7 and the contribution of sales to covering the fixed cost was equal to with 25% of the revenue. Last month's profits were €10,000 (a) What was the cost function last month? (b) If a new supplier to the business ensures a reduction in variable costs by 0.4 € / liter, but at the same time it needs an increase in the monthly advertising expenditure by €3,000, what will the new cost function be? (c) If ICE can raise the price by 10%, what should its output be so that its profit to increase by 20%?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Last month the ICE business sold 24,000 liters of ice cream. The variable cost per liter was €2.7 and the contribution of sales to covering the fixed cost was equal to with 25% of the revenue. Last month's profits were €10,000 (a) What was the cost function last month? (b) If a new supplier to the business ensures a reduction in variable costs by 0.4 € / liter, but at the same time it needs an increase in the monthly advertising expenditure by €3,000, what will the new cost function be? (c) If ICE can raise the price by 10%, what should its output be so that its profit to increase by 20%?
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