MBA 5311 Managerial Economics ; Chapter 6

3. The Abner Corporation, a retail seller of television sets, wants to determine how many television sets it must sell to earn a profit of $10,000 per month. The price of each television set is $300, and the average variable cost is $100. a. What is the required sales volume if the Abner Corporation’s monthly fixed costs are $5,000 per month? b. If the firm sells each television set at a price of $350 rather than $300, what is the required sales volume? c. If the price is $350, and if average variable cost is $85 rather than $100, what is the required sales volume? 4. According to a statistical study, the following relationship exists between an electric power plant’s fuel costs (C) and its eight- hour output as a percentage of capacity (Q): C = 16.68 + 0.125Q + 0.00439Q2 a. When Q increases from 50 to 51, what is the increase in the cost of fuel for this electric plant? b. Of what use might the result in part (a) be to the plant’s managers? c. Derive the marginal (fuel) cost curve for this plant, and indicate how it might be used by the plant’s managers b. Marginal cost is useful for determining the profit- maximizing level of output. This information will be useful if the manager finds that it is possible to expand sales at the current price and this price exceeds $0.57.