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?© BrainMass Inc. brainmass.com October 16, 2018, 6:13 pm ad1c9bdddf
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%) = ...
The solution answers the question(s) below.
Estimating Cost Functions for Blockbuster and Netflix
Assessment of cost function estimation methods by using the attached Netflix and Blockbuster Financial Data spreadsheet (attached) to develop cost function estimates for both Netflix and Blockbuster using the following methods:
- Account classification
- Regression analysis methods
In regards to account classification, high-low, and regression analysis,Which method do you feel best estimates cost functions for both Netflix and Blockbuster? Why?
Which of Netflix's or Blockbuster's costs could be appropriately estimated using the account classification method? Why?
Which of Netflix's or Blockbuster's costs could be appropriately estimated using the high-low method? Why?
Which of Netflix's or Blockbuster's costs could be appropriately estimated using the regression analysis method? Why?
Are there any other methods of estimating cost functions other than the account classification, high-low, and regression analysis methods?
In general, which cost function estimation method is likely to be the best and why? Under what conditions is, or are, the best method(s) inappropriate?View Full Posting Details