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Total Cost Function

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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 an average price of $10 per pound. Fixed costs of producing luranium are $250,000. Current variable costs per pound are $5. The firm has determined that the variable cost per pound could be reduced by $.50 if production volume could be increased by 10 percent (fixed costs would remain constant). The firm's marketing department has estimated the arc elasticity of demand for luranium to be -1.5. How much would Superior Metals have to reduce the price of luranium in order to achieve a 10 percent increase in the quantity sold? After the price cut, what would total revenue, total costs, total profits be and identify the total cost function?

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Qo = 60,000
Po = 10
FC = 250,000
AVC = 5

After the cost reduction,
AVC = 5 - 0.50 = 4.50
Q1 = 60,000*(1+10%) = ...

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Analyze cost behaviors and decision-making scenarios using linear profit and cost modeling. In a Word document, complete the exercises below and submit your responses per the instructions that follow.
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Quantity Average Cost
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4 7,700
5 7,100
6 7,100
7 7,350
8 7,850
9 8,600
10 9,600
a. Prepare a table that computes the total cost and marginal cost for each quantity between 1 and 10 units.
b. What is the relation between average cost and marginal cost?
c. What is the opportunity cost of producing one more unit if the company is currently producing and selling four units?
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Sunnybrook Farms is a local grocery store that is currently open only Monday through Saturday. Sunnybrook is considering opening on Sundays. The annual incremental costs of Sunday openings are estimated at $24,960. Sunnybrook Farms' gross margin on sales is 20%. Sunnybrook estimates that 60% of its potential Sunday sales to customers are now made on other days. What 1-day volume of Sunday sales would be necessary for Sunnybrook Farms to attain the same weekly operating income as in the current 6-day week?

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Taylor Chemicals produces a particular chemical at a fixed cost of $1,000 per day. The following table displays how marginal cost varies with output (in cases):
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1 $500
2 400
3 325
4 275
5 325
6 400
7 500
8 625
9 775
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a. Given the preceding data, construct a table that reports total cost and average cost at various output levels from 1 to 10 cases.
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Variable expense 60,000 0.60 60,000 0.60 120,000
Contribution margin 60,000 $0.60 $20,000 $0.20 80,000
Fixed expense 50,000
Net Income $30,000
You are a new consultant with the Boston Group and have been sent to advise the executives of Penury Company. The company recently acquired product line L from an out-of-state concern and now plans to produce it, along with its old standby K, under one roof in a newly renovated facility. Management is quite proud of the acquisition, contending that the larger size and related cost savings will make the company far more profitable. The planned results of a month's operations, based on management's best estimates of the maximum product demanded at today's selling prices are
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