Posted by **Tell** on Saturday, April 18, 2009 at 10:07am.

1) Lowering the price by 10%. What is the break-even level of output?

The company produces specialized glass units and is concerned that, as the market leader, they should be able to make higher profits than they currently are. The firm’s costs are as follows; overheads ‘d’ are £800,000 labour costs per unit ‘e’ are £100 and raw material costs per unit ‘f’ are £258. They also spend £40,000 ‘X’ per period on advertising and are capable of producing up to 1,000 units in each period.

The total cost function is expressed as;

TC = d + eQ + fQ + X

The demand function is as follows;

P = a – bQ + c√X

where a = 4,000, b = 3 and c = 3.

2) Doubling the advertising budget. What is the break- even level of the output?

- Maths -
**Tell**, Sunday, April 19, 2009 at 9:30am
The company produces specialized glass units and is concerned that, as the market leader, they should be able to make higher profits than they currently are. The firm’s costs are as follows; overheads ‘d’ are £800,000 labour costs per unit ‘e’ are £100 and raw material costs per unit ‘f’ are £258. They also spend £40,000 ‘X’ per period on advertising and are capable of producing up to 1,000 units in each period.

The total cost function is expressed as;

TC = d + eQ + fQ + X

The demand function is as follows;

P = a – bQ + c√X

where a = 4,000, b = 3 and c = 3.

1)Lowering the price by 10%. What is the break-even level of output

2) Doubling the advertising budget. What is the break- even level of the output?

- Economics -
**economyst**, Monday, April 20, 2009 at 9:17am
Interestingly, you are asking for the break-even level of output rather than the profit-maximizing level. Hummm.

Anyway. This is simply an algebra problem. First collapse the two Q terms in TC. So, TC=800,000+358Q + 40000

Total Revenue is P*Q. So, TR=4000Q-3Q^2 + 600Q

Set TC=TR and solve for Q (subject to the constraint that Q<=1000)

1) Repeat cept multiply all terms in the TR equation by 0.90

2) Repeat cept change advertising by 40K.

## Answer This Question

## Related Questions

- Maths Algebra - The company produces specialised industrial air extraction units...
- economics - The graph on the left shows the short-run marginal cost curve for a ...
- Algebra - The Oliver Company plans to market a new product. Based on its market ...
- Business Finance - Immediate help needed for the following two questions: 15-12A...
- economics - 5. A market contains a group of identical price-taking firms. Each ...
- Accounting: Break even point - How much profit increase for every unity sold ...
- Microeconomics - A company is working on the market of perfect competition. Its ...
- economy - consider a perfectly competitive market in which all firms have the ...
- Math - The Oliver Company plans to market a new product. Based on its market ...
- Economics - The cost function for a firm is given by TC = 500 + Q2. The firm ...

More Related Questions