February 27, 2017

Homework Help: Economics

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?

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