Assignment:
1. A firm has the following total revenue and total cost schedules:
TR = $2Q. TC = $4,000 + $1.5Q.
a. What is the break-even level of output? What is the level of profits at sales of 9,000 units?
b. As the result of a major technological breakthrough, the total cost schedule is changed to: TC = $6,000 + $0.5Q.
What is the break-even level of output? What is the level of profits at sales of 9,000 units?
2. The manufacturer of a product that has a variable cost of $2.50 per unit and total fixed cost of $125,000 wants to determine the level of output necessary to avoid losses.
a. What level of sales is necessary to break even if the product is sold for $4.25? What will be the manufacturer's profit or loss on the sales of 100,000 units?
b. If fixed costs rise to $175,000, what is the new level of sales necessary to break even?
c. If variable costs decline to $2.25 per unit, what is the new level of sales necessary to break even?
d. If fixed costs were to increase to $175,000, while variable costs declined to $2.25 per unit, what is the new break-even level of sales?
e. If a major proportion of fixed costs were noncash (depreciation), would failure to achieve the break-even level of sales imply that the firm can- not pay its current obligations as they come due? Suppose $100,000 of the above fixed costs of $125,000 were depreciation expense. What level of sales would be the cash break-even level of sales?