ECON MICRO
5th Edition
ISBN: 9781337000536
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 1, Problem 2.4P
To determine
The factors that must be considered while taking decisions to increase the profitability.
Concept introduction:
Marginal Analysis tool in the hands of producers to find out the profits and the associated cost with an activity.
Expert Solution & Answer
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QUESTION 1
Demand equation for a product is P = 100 – 0.01Q and the total
cost is TC = 50Q + 10000
-
(a). Write down the equation for the total revenue.
(b). Write down the equation for the profit.
(c). Find the value of Q when the firm breaks even.
(d). Determine the maximum profit and the value of output (Q)
at which profit is maximum.
Part 2 solution needed
A. At XYZ Restaurant, which sells only pepperoni pizza, has the cost profile:
[Note that variable costs are per pizza]
Fixed Costs
Variable Costs
General
$1,500 Flour
$0.50
Labor
Rent
$3,000 Yeast
s0.05
Insurance
$200
Water
$0.01
Advertising $500 Cheese $3.00
$450 Pepperoni $2.00
Utitilies
Total
$5,650 Total
$5.56
Based on the total variable expenses per pizza, we now know that XYZ Restaurant must price its
pizzas at $5.56 ($0.50 + $0.05 + $0.01 + $3.00 + $2.00) or higher just to cover those costs.
We also know that if the pizzeria charges $10 for the finished product, then it receives $4.44 per
pizza to contribute to the fixed costs and ultimately the restaurants overall profits.
Question: How many pizzas does XYZ Restaurant need to sell at $10 each to cover
all those fixed monthly expenses?
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