Thomson Publishing is considering publishing a paper back version of Quantitativ

Question

Thomson Publishing is considering publishing a paper back version of Quantitative Methods for Business. The setup cost for manuscript preparation, textbook design and production setup is estimated at $80,000. Variable production and material costs are estimated at $3 per book. Demand over the life of the book is estimated at 4000 copies. The publisher plans to sell the text to college universities and book stores at $20 each.

Part A: If the publisher believes that the price per copy would be increased to $29.95 and not affect the anticipated demand of 4000 copies should the publisher go ahead with this offer?

Part B: With a demand of 4000 copies what is the minimum price per copy the publisher must charge to break even?

Part C: If the publisher believes that the price per copy would be increased to $29.95 and not affect the anticipated demand of 4000 copies what profit or loss can be anticipated?

Explanation / Answer

answer
part A
the profit or loss at price 29.95
=total revenue- total cost
=P*Q-(fixed cost +variable cost)
=4000*29.95-(80000+4000*3)
=27800
the profit will be 37800 so it can go for the offer

part B
breakeven will be at total revenue = total cost
=P*Q=(80000+AVC*Q)
=4000P=80000+3*4000
P=920000=23
so the minimum price it will charge to break even is P=$23

part C
from part A the profit at price 29.95 is $37800

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