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# Calculating the proit levels in the given cases

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Arrow now sells 100,000 silk shirts at \$100 each. The material per shirt costs \$40 and labor costs are \$50 per shirt. The firm has \$1.2m. In fixed costs. Price elasticity of demand for such shirts is -4. The firm is considering lowering the price by 20% to \$80. At the higher output, labor cost per shirt is expected to drop by 22% and the raw material supplier will offer a 15% discount on materials.

a. What is the profit position of the firm at the moment?

b. Would you advise the firm to cut prices? Why?

https://brainmass.com/economics/price-levels/calculating-proit-levels-given-cases-483596

#### Solution Preview

a. Current Variable costs=TVC1=(40+50)*100000=\$9,000,000
Fixed Costs=TFC=\$1,200,000
Total Costs=TFC+TVC1=1200000+9000000=\$10,200,000
Current ...

#### Solution Summary

Solution determines the profit levels in current and proposed scenario. It also determines if the proposed price cut is advisable.

\$2.19