# Trade volume, AVC & elasticity of cost

Power Brokers, Inc., a discount brokerage firm, is contemplating opening a new regional office in Providence, Rhode Island. An accounting cost analysis of monthly operating costs at a dozen of its regional outlets reveals average fixed costs of $4,500 per month and average variable costs of:

AVC=$59-$0.006Q

Where AVC is average variable cost in dollars and Q is output measured by number of stock and bond trades. A typical stock or bond trade results in $100 of gross commission income, with PBI paying 35% to its sales representative.

A. Estimate the trade volume necessary for PBI to reach a target return of $7,500 per month for a typical office.

B. Estimate and interpret the elasticity of cost with respect to output at the trade volume found in part A.

https://brainmass.com/economics/output-and-costs/trade-volume-avc-elasticity-cost-404745

#### Solution Preview

A. Estimate the trade volume necessary for PBI to reach a target return of $7,500 per month for a typical office.

For the target return of 7,500 per month, the company has to generate enough revenue to cover fixed costs and the target return.

Fixed costs = 4500 + ...

#### Solution Summary

The solution discusses each economics question presented. All needed calculations are also included.