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.

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.

Superior Metals Company has seen its sales volume decline over the last few years as the result of rising foreign imports. In order to increase sales (and hopefully, profits), the firm is considering a price reduction on luranium - a metal that it produces and sells. The firm currently sells 60,000 pounds of luranium a year at a

Own Price elasticity. Given the data to the right, compute the POINT elasticity of demand of a good as its price goes from $1.00 to $1.50. Show formula and work.
Price Quantity
1.00 10
1.50 9
Is the demand for this good in this range elastic or inelastic?
If the wage bill per unit of labor (L)

9. What is the basic C-V-P equation? What is a more detailed version of this equation?
10. What is the contribution margin, and why is it important for managers to know the contribution margins of their products?
11. How much will profits increase for every unit sold over the break-even point?
12. What is the maj

1. If the demand elasticity for a product is -2, and a profit-maximizing firm sells the product for $10, what is its marginal cost?
2. How would each of the following affect the firm's marginal, average, and average variable cost curves?
(1) an increase in wages
(2) a decrease in material costs
(3) the government impos

1. After a 10% price discount, a firm found that its weekly sales increased by 30%. If the marginal cost (MC) of this product is $40 each, what is the optimal price for this product?
2. Suppose the total cost equation for a competitive firm is given by:
TC=1,000+ 10Q -2Q^2 + 0.5Q^3
(A) At what output is the average vari

The average variable cost equation for a competitive firm is:
AVC = 10 - 2Q + 0.5Q^2
1. At what output is AVC at a minimum?
2. If the market price of the firm's output is $7 per unit, should the firm produce or shut down?

ABC, Inc sells it toys for $15 with a sales volume of 30,000 units per quarter. Assume the price elasticity coefficient is -0.5 and ABC, Inc raises the price to $16 in anticipation of the Christmas season. Estimated 4th quarter sales volume will be?
Use Are formula elasticity of demand.

Please assist with all parts. Thank you!!!
Palm Products Company has collected data on its average variable costs of production for the past 12 months. The costs have been adjusted for inflation by deflating with an appropriate price index. The AVC and associated output data are presented below:
obs Q AVC obs Q A

Using the following demand schedule, calculate total revenue, marginal revenue and own-price elasticity of demand. Then show the relation among marginal revenue, price and elasticity of demand.
Quantity Marginal Elasticity
Price Demanded Revenue Of Demand
$60 8
50 16
40 24
30