Question
Your company is producing and selling three products, Alpha, Beta and Gamma. The three products independent with regard to consumption (that is, they are neither
Your company is producing and selling three products, Alpha, Beta and Gamma. The three products
independent with regard to consumption (that is, they are neither substitutes nor complements). The
price, quantity sold and unit variable cost (also known as average variable cost) for each product
is listed below.
AlphaBetaGamma
Price (per unit)$22$26$25
Quantity Sold (Q)400200100
Unit Variable Cost (AVC)$21$23$21
(a) Assuming that the company has a fixed overhead cost of $1200 that must be borne if any of the
three products is produced, should the firm "stay in business" or "go out of business"?
I would "Stay in" or "Go out" Explain
(b) If you answer to (a) was "stay in business", then how high would the fixed overhead have to be
in order for the firm to "go out of business?Likewise, if your answer to (a) was "go out of
business", then how low would the fixed overhead have to be in order for the firm to "stay in
business"? Show your work.
Fixed Overhead would need to be = $
(c)Now, assume that products Beta and Gamma are produced using the same facilities so that only
one of these two product line can be produced (in addition to Alpha). If the fixed overhead remains
$1200, which one (if either or neither) would you produce? Explain your answer. If the fixed
overhead was lowered to $600, which (if either) one would you produce?
At a fixed overhead of $1200, I would produce (i) Alpha & Beta or (ii) Alpha & Gamma or (iii)
nothing at all.
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