The following data shows total cost and demand information for Jon\'s Riding Mow
ID: 1193345 • Letter: T
Question
The following data shows total cost and demand information for Jon's Riding Mowers.
Unit Price >800 800 750 700 650 600 550 500 450 400 350
Units Demanded 0 1 2 3 4 5 6 7 8 9 10
Total Cost $ 200 $ 500 $ 700 $ 800 $ 850 $ 950 $1150 $1450 $1850 $2350 $2950
15. (2 points) What is Jon's fixed cost? ________________________________________
16. (8 points) Calculate the AFC, AVC, and profit per unit if Jon sets the price at $600.
________________________________________________________________________________
________________________________________________________________________________
17. (5 points) What is the profit-maximizing price and sales level for riding mowers?
________________________________________________________________________________
________________________________________________________________________________
18. (5 points) If total costs at each output level were to double, would the profit maximizing output level be greater or smaller than that calculated in Question 17? Can you answer this question without performing any calculations? Explain.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Explanation / Answer
15. Jon's fixed cost is $200
Fixed Cost is the cost which is fixed irrespective of the quantity produced. Given that the units demanded when price is greater than 800 is 0 but yet a cost of $200 is incurred. This is nothing but the fixed cost.
16. Table:
17. Profit maximising quantity is the quantity at which Marginal Revenue equals to the Marginal Cost.
Marginal Revenue (MR) is the difference in the total revenue divided by the difference in the quantity
Marginal Cost (MC) is the difference in the total cost divided by the difference in the quantity
Calculating the MR & MC as follows:
From the above, MR = MC when quantity is 350. This is the profit maximising quantity for the organisation.
18. If total costs are doubled, there will be an increase in the profit maximising quantity. This is because, now more units will have to produced & sold to recover the costs.
Unit Price Units Demanded Total Cost Fixed Cost Variable Cost AFC AVC Total Price Net Profit > 800 0 200 200 0 0 -200 800 1 500 200 300 200.00 300.00 600 100 750 2 700 200 500 100.00 250.00 1200 500 700 3 800 200 600 66.67 200.00 1800 1000 650 4 850 200 650 50.00 162.50 2400 1550 600 5 950 200 750 40.00 150.00 3000 2050 550 6 1150 200 950 33.33 158.33 3600 2450 500 7 1450 200 1250 28.57 178.57 4200 2750 450 8 1850 200 1650 25.00 206.25 4800 2950 400 9 2350 200 2150 22.22 238.89 5400 3050 350 10 2950 200 2750 20.00 275.00 6000 3050Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.