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Quiz # 3 Answers and Solution: Outputs (In Units) Fixed Cost Variable Cost Total Cost Total Revenue Profit

The document summarizes the solution to a profit maximization problem. It provides the following key details: 1) The total revenue, total cost, and profit functions are determined. Total revenue is 7Q and total cost is 2Q + 450,000. Profit is equal to 5Q - 450,000. 2) Breakeven occurs at 90,000 units when total revenue of 630,000 equals total cost of 630,000. 3) The total variable cost if output is 75,000 units is 150,000. 4) The number of units needed to cover the fixed cost of 450,000 is 64,285 units.

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90 views2 pages

Quiz # 3 Answers and Solution: Outputs (In Units) Fixed Cost Variable Cost Total Cost Total Revenue Profit

The document summarizes the solution to a profit maximization problem. It provides the following key details: 1) The total revenue, total cost, and profit functions are determined. Total revenue is 7Q and total cost is 2Q + 450,000. Profit is equal to 5Q - 450,000. 2) Breakeven occurs at 90,000 units when total revenue of 630,000 equals total cost of 630,000. 3) The total variable cost if output is 75,000 units is 150,000. 4) The number of units needed to cover the fixed cost of 450,000 is 64,285 units.

Uploaded by

Jolina Ayngan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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QUIZ # 3 𝑦 − 550,000 = 2𝑥 − 100,000 simplify

ANSWERS AND SOLUTION


𝑦 = 2𝑥 + 450,000 substitute
GIVEN:
𝑇𝐶𝑓𝑥 = 2𝑥 + 450,000
𝑇𝑅 = 𝑠𝑝 × 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦
Outputs Fixed Variable Total Total Where in: 𝑇𝑉𝐶 = 2𝐶 𝐴𝑁𝐷 𝑇𝐹𝐶 = 450, 000
Profit Conclusion
( in units) Cost Cost Cost Revenue
50 000 550 000 350 000 Since TR and TC are found, look for TP.

88 000 626 000 616 000 𝑇𝑃𝑓𝑥 = 𝑇𝑅𝑓𝑥 − 𝑇𝐶𝑓𝑥


90 000 630 000 630 000
𝑇𝑃𝑓𝑥 = 7𝑄 − ( 2𝑥 + 450,000) simplify
100 000 650 000 700 000
𝑇𝑃𝑓𝑥 = 5𝑄 − 450,000
125 000 700 000 875 000

1. Determine TR, TC, and the Profit Function. 2. How many units to breakeven? Find the breakeven cost and
Sol’n: revenue . How much is the breakeven price?
Since the sp is not given compute for it first. 𝑇𝑉𝐶 2𝑄
𝐴𝑉𝐶 = 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 = 𝑄
=2
𝑇𝑅 = 𝑠𝑝 𝑥 𝑄

𝑇𝑅 350,000
OR look for the coefficient of Q in the TVC function
𝑠𝑝 = 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 = 50,000
=7
𝑇𝐹𝐶
𝐵𝐸𝑃𝑈 = 𝑠𝑝−𝐴𝑉𝐶
𝑇𝑅𝑓𝑥 = 7𝑄
450,000
𝐵𝐸𝑃𝑈 = 7−2
= 90,000 𝑢𝑛𝑖𝑡𝑠
In order to find for TC use the two- point method where in TC is y.
𝑦 − 𝑦1 𝑦2 − 𝑦1
= 𝐵𝐸𝑃𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = 7𝑄𝑒 = 7 (90,000) = 630,000
𝑥 − 𝑥1 𝑥2 − 𝑥1
𝐵𝐸𝑃𝐶𝑜𝑠𝑡 = 2𝑄𝑒 + 450,000 = 2(90,000) + 450,000 = 630,000
𝑦−550,000 626,000−550,000
= simplify the right-side of the equation
𝑥− 50,000 88,000−50,000

𝑦−550,000
𝑥− 50,000
= 2 cross-multiply
3. How much is the total variable cost (TVC) if Q= 75,000 units? 5. Complete the table.

𝑇𝑉𝐶 = 2𝑄 Outputs Fixed Variable Total Total


Profit Conclusion
( in units) Cost Cost Cost Revenue
= 2 (75,000)
50 000 450 000 100 000 550 000 350 000 (200 000) Net loss
𝑇𝑉𝐶 = 150,000 88 000 450 000 176 000 626 000 616 000 (10 000) Net loss

90 000 450 000 180 000 630 000 630 000 0 breakeven

100 000 450 000 200 000 650 000 700 000 50 000 Net income
4. How many units to cover the fixed cost?
125 000 450 000 250 000 700 000 875 000 175 000 Net income
𝑇𝑅 = 𝑇𝐹𝐶

7𝑄 = 450,000
Use the ff:
7𝑄 = 450,000
7 TFC = 450,000

𝑄 = 64,285.71429 𝑜𝑟 64, 285.71 TVC = 2Q

Note : round-off to the nearest two decimal places TP = TR – TC or TP = 5Q – 450,000

Conclusion:

NET LOSS = NEGATIVE PROFIT

NET INCOME = POSITIVE PROFIT

BREAKEVEN = 0 PROFIT

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