Concept explainers
(a)
The total revenue function of the firm.
Answer to Problem 17P
Concept used: Total revenue refers to the total amount of money collected from the sale of goods and services produced by a firm.
Calculation:
Let output be given by x units per year and Price be given by P.
Pick two points (250, 50000) & (1000, 100000)
Slope = 200
Then,
Conclusion:
Explanation of Solution
Concept used: Total revenue refers to the total amount of money collected from the sale of goods and services produced by a firm.
Calculation:
Let output be given by x units per year and Price be given by P.
Pick two points (250, 50000) & (1000, 100000)
Slope = 200
Then,
Conclusion:
(b)
The marginal cost of producing a given level of output.
Answer to Problem 17P
Concept used: Total cost refers to the total cost of producing goods and services. It also included the variable cost of production and the fixed cost of production.
Calculation:
Let output be given by x and Price be given by P. Then,
Marginal cost of the slope of the total cost line. Cost changes from $100,000 to $200,000, output changes from 0 units to 1000 units per year.
So,
Marginal cost is $100 per unit.
Conclusion:
Marginal cost is $100 per unit.
Explanation of Solution
Concept used: Total cost refers to the total cost of producing goods and services. It also included the variable cost of production and the fixed cost of production.
Calculation:
Let output be given by x and Price be given by P. Then,
Marginal cost of the slope of the total cost line. Cost changes from $100,000 to $200,000, output changes from 0 units to 1000 units per year.
So,
Marginal cost is $100 per unit.
Conclusion:
Marginal cost is $100 per unit.
(c)
The break-even level of output.
Answer to Problem 17P
Break-even level of x is 1000 unit/year
Given information:
Concept used: Break-even point refers to the point where the firm earns zero economic profit. It is the point where total revenue is equal to the total cost of production.
Calculation:
Break-even point is given by,
Conclusion:
Break-even output is 1000 units.
Explanation of Solution
Given information:
Concept used: Break-even point refers to the point where the firm earns zero economic profit. It is the point where total revenue is equal to the total cost of production.
Calculation:
Break-even point is given by,
Conclusion:
Break-even output is 1000 units.
(d)
The profit of the company when 1500 units are produced and sold.
Answer to Problem 17P
Profit = $50,000
Given information:
Concept used: Profit refers to the amount of gain earned by the company. It is calculated as total revenue minus total cost of producing a given level of output.
Calculation:
If you sell 1500 units this year
Conclusion:
Profit = $50,000.
Explanation of Solution
Given information:
Concept used: Profit refers to the amount of gain earned by the company. It is calculated as total revenue minus total cost of producing a given level of output.
Calculation:
If you sell 1500 units this year
Conclusion:
Profit = $50,000.
(e)
The average and marginal cost of producing a given level of output.
Answer to Problem 17P
Average cost = $166.67
Marginal cost=$100
Given information:
Concept used: Marginal cost refers to the additional cost when one more unit of a good is produced. While, average cost is the cost per unit of output. It can be computed as total cost divided by the level of output.
Calculation:
Marginal cost is given by the change in total cost of production.
Conclusion:
Average cost = $166.67
Marginal cost=$100.
Explanation of Solution
Given information:
Concept used: Marginal cost refers to the additional cost when one more unit of a good is produced. While, average cost is the cost per unit of output. It can be computed as total cost divided by the level of output.
Calculation:
Marginal cost is given by the change in total cost of production.
Conclusion:
Average cost = $166.67
Marginal cost=$100.
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Chapter 2 Solutions
ENGR.ECONOMIC ANALYSIS
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