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(a)
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Answer to Problem 15P
Explanation of Solution
Given information:
Charges per camper or price charged = $480 per week.
Fixed costs = $192,000 per session.
Variable cost per camper = $320 per week.
Capacity = 200 campers.
Total cost is the cost of producing output. It includes both fixed and variable cost of production.
Calculation:
X = the number of campers per week.
The mathematical relationship is given by,
(b)
The break-even point for the company.
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Answer to Problem 15P
100 campers to break-even.
Explanation of Solution
Given information:
Charges per camper or price charged = $480 per week
Fixed costs = $192,000 per session
Variable cost = $320 per week
Capacity = 200 campers.
Total cost is the cost of producing output. It includes both fixed and variable cost of production.
Break-even point refers to the point where the company is making zero profits. At this point the total revenue of the company is equal to its total cost.
Calculation:
At break-even point,
Conclusion:
To break-even 100 camper for a 12-week session.
(c)
The profit or loss of the company if it operates at 80% capacity.
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Answer to Problem 15P
Profit = $115,200.
Explanation of Solution
Given information:
Charges per camper or price charged = $480 per week
Fixed costs = $192,000 per session
Variable cost = $320 per week
Capacity = 200 campers.
Total cost is the cost of producing output. It includes both fixed and variable cost of production. The profits of the company are its revenue left after deducting the total cost.
Calculation:
If it operated at 80% capacity it means there are 160 campers in it. (80% of 200)
So, the profit of the company is,
Conclusion:
Thus, the company is making a profit of $115,200 at 80% capacity.
(d)
The average and marginal cost when the camp operates at 80% capacity.
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Answer to Problem 15P
Average cost is $5,040 and Marginal cost is $3,840 per camper.
Explanation of Solution
Given information:
Charges per camper or price charged = $480 per week
Fixed costs = $192,000 per session
Variable cost = $320 per week
Capacity = 200 campers.
Total cost is the cost of producing output. It includes both fixed and variable cost of production.
Average cost is the per unit cost of production. It is obtained by dividing total cost by the total units produced.
Marginal cost is the addition to total cost when one more unit of an output is produced.
Calculation:
Total cost at 80% capacity is given by,
Marginal cost is the slope of the total cost equation. Therefore,
Conclusion:
Average cost is $5,040 and Marginal cost is $3,840 per camper.
(e)
Is it ethical to charge a different price to campers based on their family’s socio economic status.
No, it is not ethical to charge a different price to consumers.
Charging different rates to consumers for a same product is referred to as
However, some people argue that different rates will allow people with low willingness to pay also join the camp, as they will be charged low rates. It will lead to a greater participation in the camp.
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Answer to Problem 15P
No, it is not ethical to charge a different price to consumers.
Explanation of Solution
Charging different rates to consumers for a same product is referred to as price discriminations. Discriminations of any sort can never be treated ethical. It leads to a wide disparity in the campers and is also considered illegal. There is no consumer surplus, all the surplus is the market is taken over by the producers.
However, some people argue that different rates will allow people with low willingness to pay also join the camp, as they will be charged low rates. It will lead to a greater participation in the camp.
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Chapter 2 Solutions
Engineering Economic Analysis
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