Chapter 7.1, Problem 72E

(a)

To determine

To Estimate : The point of intersection of two lines C and R in the graph given below where C indicating cost of producing x units and revenue R indicating revenue when x units are sold and what it represents.

  

Explanation of Solution

The approximate intersection point is x is equal to 2500 and Y is equal to 1,50,000$. That is, the revenue curve and the cost curve intersect when cost and revenue are both1,50,000$ This is when number of units produced is 2500 approximately. This means that there is no loss and no profit as total revenue is equal to total cost by producing 2500 units. This point is called breakeven point.

(b)

To determine

To Identify: the value of x (units sold) for which i) there is an overall loss and ii) an overall profit.

Answer to Problem 72E

i) There is an overall loss if number of units produced is less than 2500 else ii) if x is greater than 2500 there an overall profit. 

Explanation of Solution

As can be seen from the figure revenue curve is below cost curve if the number of units produced is less than 2500. Hence there is an overall on loss if number of units produced is less than 2500 (R<C) else the cost is above revenue for X greater than 2500 resulting in an overall profit (R>C). 

Conclusion: i) there is an overall loss if number of units produced is less than 2500 else ii) if x is greater than 2500 there an overall profit.