P8.7 Cost Elasticity. Power Brokers, Inc. (PBI), a discount brokerage firm, is contemplating opening a new regional office in Providence, Rhode Island. An accounting cost analysis of monthly operating costs at a dozen of its regional outlets reveals average fixed costs of $4,500 per month and average variable costs of

/U/C= $59-$0.006Q where AVC is average variable costs (in dollars) and Q is output measured by number of stock and bond trades.

A typical stock or bond trade results in $100 gross commission income, with PBI paying 35 per cent of this amount to its sales representatives.