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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

On the occasion of summer vacation, a student plans to open a milk tea shop. Before deciding to open a store, she wants to find out how profits fluctuate with fluctuations in selling prices and costs per unit of product. The selling price per cup of milk tea can range from VND 20,000.00 to VND 30,000.00 (the level of change is VND 1,000.00 each time) and the cost to make a cup of milk tea can range from VND 13,000.00 to VND 17,000.00 (the level of change is VND 500 each time). Knowing that the initial fixed cost is VND 24,000,000.00 and the number of cups of milk tea sold (Demand) depends on the selling price according to the formula:

Demand = 24000 - 0.5 * Unit Price

Use the two-dimensional sensitivity analysis to answer the following questions:

a) What is the profit if the selling price is 23,000.00 VND and the cost per unit is 15,000.00 VND?

b) How will profit change with each increase in cost of a product unit by VND 500.00 with a constant selling price of VND 25,000.00?

c) What is the maximum profit the student can earn?

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