1. The Abner Corporation, a retail seller of television sets, wants to determine how many television sets it must sell in order to earn a profit of $10,000 per month. The price of each television set is $300, the average variable cost is $100, and the fixed costs are $5,000 per month.
What is the required sales volume for Abner Corporation to earn a profit of $10,000 per month?
If the corporation were to sell each television set at $350 rather than $300, what would be the required sales volume?
If the price is $350 but the average variable cost decreased to $85 rather than $100, what would be the required sales volume now?
2. The Richardson Manufacturing Company's short-run average cost function is estimated as
AC = 3 + 4 Q,
where AC is the firm's average cost (in dollars per pound of the product) and Q is the output.
Obtain an equation for the firm's short-run total cost function.
Does the firm have any fixed costs? Explain.
If the price of the company's product (per pound) is $3, is the firm making profits or losses? Explain.
Derive an equation for the firm's marginal cost function.