2-17 Consider the accompanyingig questions , and answer the following questions.

Question

2-17 Consider the accompanyingig questions , and answer the following questions. breakeven graph for an investment $40 $35 $30 Total Revenue Total Cost S20F $15 - $10 $5 $0 0 250 500 750 1000 1250 1500 1750 Output (units/year) (a) Give the equation for total revenue for x units per year (b) Give the equation for total costs for x units per year. (c) What is the "breakeven" level of x? (d) If you sell 1500 units this year, will you have a profit or loss? How much? e) At 1500 units, what are your marginal and average costs?

Explanation / Answer

Req a: Total revenue at 1000 units of output : $ 200,000 Revenue per unit (200000/1000): 200 per unit Revenue equation R (X) = 200 X Req b: Total cost at 1000 units of output: 200000 Less: Cost at zero output:                 100000 Variable cost for 1000 units:      100000 Divide: Number of units:             1000 Variable cost per unit:                  100 Cost Equatio C (X)= 100,000 + 100X Req c: Break even level of output = 1000 Units Ehere revenue equation = Cost equation Reqd: At 1500 output which is above break even output, there will be profits. Revenue at 1500 units:; 200*1500 = 300000 Cost = 100000+1500*100 = 250000 Profit at 1500 units = 300000 -250000 = 50000 Req e: At 1500 units, Marginal cost = 100 per unit (i.e. variable c ost per unit) And Average cost per unit = 250,000 /1500 = 166.67 per unit

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