The theory and estimation of cost
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The Central Publishing Company is about to publish its first textbook in managerial economics. It is now in the process of estimating costs. It expects to produce 10,000 copies during its first year. The following costs have been estimated to correspond to the expected copies.
a.Paper Stock $8,000
b.Typesetting $15,000
c.Printing$50,000
d.Art $9,000
e.Editing$20,000
f.Reviews $3,000
g.Promotion $12,000
h.Binding$22,000
i.Shipping $10,000
In addition to the proceeding costs, it expects to pay the authors a 13 percent royalty and its sales people a 3 percent commission. These percentages will be based on the publishers price of $48 per textbook.
Some of the preceding costs are fixed and others are variable. The average variable costs are expected to be constant. While 10,000 copies is the projected volume, the book could sell anywhere between 0 and 20,000 copies.
Using the preceding data,
a- write equations for total cost, average total cost, average variable cost, and marginal cost.
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The theory and estimation of cost is examined.
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