Critically discuss the issues that fixed, variable and semi-variable costs can have on decisions that the management of a company must make regarding the pricing of their products.
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Critically discuss the issues that fixed, variable and semi-variable
costs can have on decisions that the management of a company must
make regarding the pricing of their products.
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- You plan to open your own hamburger shop. After doing some research and planning, you have created the table below to help estimate how much to charge for your hamburger to make a profit. You already identified various quantities of hamburgers you could potentially produce as well as the related variable and fixed costs. Review the information already provided in the Hamburger Shop Information Costs table, then calculate and enter the remaining information. # of Hamburgers Variable Costs Fixed Costs Total Costs Average Total Cost Average Variable Cost Marginal Cost 1,000 $500 $5,000 $5,500 2,500 $1,000 $5,000 $6,000 4,000 $1,400 $5,000 $6,400 9,000 $2,400 $5,000 $7,400 13,000 $3,400 $5,000 $8,400 20,000 $10,000 $5,000 $15,000 45,000 $31,250 $5,000 $36,250Assume you are selling season tickets for a team in the National Football League. What are the fixed and variable costs associated with pricing these season tickets? When you look at the existing season ticket prices for the team, how would you sell those same season tickets at a 10 percent higher price?The table below presents the average and marginal cost of producing cheeseburgers per hour at a roadside diner. Cheeseburger Production Costs Quantity(burgers per hour) Average Variable Cost (dollars) Average Total Cost (dollars) Marginal Cost (dollars) 0 — — — 10 $1.00 $6.60 $1.00 20 0.70 3.50 0.40 30 0.70 2.57 0.70 40 0.78 2.18 1.00 50 0.88 2.00 1.30 60 1.07 2.00 2.00 70 1.34 2.14 3.00 80 1.74 2.44 4.50 90 2.23 2.86 6.20 100 2.81 3.37 8.00 a. At a quantity of 40 cheeseburgers per hour, the average total cost of production is (Click to select) falling rising at a minimum and the marginal cost of cheeseburger production is (Click to select) falling rising at a minimum . b. At a quantity of 60 cheeseburgers per hour, the average variable cost of production is (Click to select) falling rising at a minimum and the average total cost of cheeseburger production is (Click to select) falling rising at a minimum .
- How much should a firm sell of a particular product in order to maximize profit? What factor does it have to consider in arriving at this decision?Find TC, MC, AFC, AVC, and ATC from the following table.Instructions: Enter your responses rounded to two decimal places. Units (Q) FC($) VC($) TC($) MC($) AFC($) AVC($) ATC($) 0 100 0 — — — — 1 100 40 2 100 60 3 100 70 4 100 85 5 100 130 (Note: Marginal costs should be interpreted as between levels of output.)Using the figure above, what is profit/loss for the firm?
- Which of the costs discussed in the chapter is the most important when a firm is deciding how much to produce? Costs that are spent to improve the image of the firm. A firm will choose to increase output if it spends a large amount on advertising and brand image. Fixed costs because these costs are spent and cannot be changed in the time period under consideration. If fixed costs are higher, the firm will choose to produce more output. Variable costs because these costs change as output changes. If the firm wants to maximize profits, it will choose to produce a quantity where variable costs are minimized. Marginal cost because this cost shows the additional cost associated with producing one more unit of output. Firms will use this information to decide to produce more or less output.Suppose the imaginary company of Roobek is a small, Reno-based American apparel manufacturer specializing in athleisure. The following table presents the brand’s total cost of production at several different quantities. Fill in the remaining cells of the following table. Quantity Total Cost Marginal Cost Fixed Cost Variable Cost Average Variable Cost Average Total Cost (Pairs) (Dollars) (Dollars) (Dollars) (Dollars) (Dollars per pair) (Dollars per pair) 0 60 — — 1 160 2 220 3 270 4 340 5 450 6 630 On the following graph, plot Douglas Fur’s average total cost (ATC) curve using the green points (triangle symbol). Next, plot its average variable cost (AVC) curve using the purple points (diamond symbol). Finally, plot its marginal cost (MC) curve using the orange points (square symbol). (Hint: For ATC…In a business where, fixed costs are very high (i.e. the production of a new Music CD, or the research and development of a new cancer drug) and the marginal costs are very low why can't price equal marginal cost?
- USE THE GRAPH TO ANSWER THE FOLLOWING QUESTIONS: (IF REQUIRED, USE THE DISCREET NUMBER OF BARRELS). ANSWERS IN WHOLE NUMBER a. How many barrels of natural-organic oil reflect the lowest minimum average variable cost?b. How much is the price of the natural-organic oil per barrel?c. How much is the fixed cost to produce the natural-organic oil?d. How many barrels of natural-organic oil should the firm produce to maximize its profit?e. At what production level would the marginal cost exceed the average cost?Happy Go Lucky Electric Company is the only company providing electric power to the city of Go Lucky. The accompanying graph depicts their marginal costs (MC), total costs (ATC), demand (D), and marginal average t revenue (MR). Move point E to the firm's profit maximizing price and quantity. At the profit maximizing point, what is Happy Go Lucky level of profit? 0 $150 $90 -$30 Price and Costs ($/unit) 10 9 8 7 6 10 4 3 2 1 0 0 5 10 15 20 25 30 35 MR MC 0 ATC D 40 45 50By using the notions of fixed and variable costs explain why theme parks close in winter months (Hint: Draw the relevant graphs)
