Purchase Solution

Calculating the proit levels in the given cases

Not what you're looking for?

Ask Custom Question

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?

Purchase this Solution

Solution Summary

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

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 provided by:
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
Recent Feedback
  • "Thank you"
  • "Really great step by step solution"
  • "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
  • "Thanks Again! This is totally a great service!"
  • "Thank you so much for your help!"
Purchase this Solution


Free BrainMass Quizzes
Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.