Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Lite and Brite produce lamps which they sell for 40. Lite has fixed costs of 8,000 less than Brite and average variable costs of 33,
Lite and Brite produce lamps which they sell for 40. Lite has fixed costs of 8,000 less than Brite and average variable costs of 33, which is 10 per cent more than Brite. Lite has a break-even output which is 15 per cent less than Brite, and produces 25 per cent less revenue than Brite. Lite also makes 12,000 less profit than Brite. a. Calculate the cost functions of both firms. b. Calculate the outputs of both firms. c. Calculate the profits of both firms. Last month Susie Q sold 24,000 litres of ice-cream. The variable costs were 2.70 per litre and each litre contributed 25 per cent of its revenue to fixed costs and profits. It has just discovered a new supplier which will enable it both to reduce its cost by 0.40 per litre and to improve its quality. However, it estimates that it will have to spend another 3,000 on advertising per month to inform customers of the improvement. Profits last month were 10,000. a. What is the previous month's cost function? b. What is the new cost function with the new supplier? c. How many litres will Susie Q have to sell to increase profit by 20 per cent, assuming it keeps its price the same? d. If Susie Q can raise its price by 10 per cent, what difference will this make to the sales in (c) above
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started