Evaluate the effects of the proposed price

Assignment Help Business Economics
Reference no: EM13904747

Royersford Knitting Mills, Ltd., sells a line of women's knit underwear. The firm now sells about 20,000 pairs a year at an average price of $10 each. Fixed costs amount to $60,000, and total variable costs equal $120,000. The production department has estimated that a 10 percent increase in output would not affect fixed costs but would reduce average variable cost by 40 cents.
The marketing department advocates a price reduction of 5 percent to increase sales, total revenues, and profits. The arc elasticity of demand with respect to prices is estimated at -2.

a. Evaluate the impact of the proposal to cut prices on

(i) total revenue,

(ii) total cost, and

(iii) total profits.

b. If average variable costs are assumed to remain constant over a 10 percent increase in output, evaluate the effects of the proposed price cut on total profits.

Reference no: EM13904747

Questions Cloud

Government of a newly emerging african country : Pretend you are a trade economist providing advice to the government of a newly emerging African country. Present (neutrally) both the case for and against a trade policy based on import substitution. You may use specific international (real-world..
Price elasticity of supply of long grain rice : How do you think production possibilities and storage possibilities influence the price elasticity of supply of long grain rice?
What is the average number of customers in the system : The Grand Movie Theater has one box office clerk. On average, each customer that comes to see a movie can be sold its ticket at the rate of 6 per minute. For the theater's normal offerings of older movies, customers arrive at the rate of 3 per minute..
Vision statement and mission statement : Should organizations have both a vision statement and a mission statement? If you were to lead an organization and you could have only one, a mission or vision statement, which would you choose and why?
Evaluate the effects of the proposed price : If average variable costs are assumed to remain constant over a 10 percent increase in output, evaluate the effects of the proposed price cut on total profits.
Viewpoint of the shareholders of the parent company? : viewpoint of the shareholders of the parent company?
Takeaways from class that can make you effective leader : In this week’s Journal, reflect on the major takeaways from this class that can make you an effective leader.
Who is considered exposed to the virus : Who is considered exposed to the virus , Who would you isolate and for how long and Who would you quarantine and for how long?
Estimate a population proportion : After calculating the sample size needed to estimate a population proportion to within 0.05, you have been told that the maximum allowable error (E) must be reduced to just 0.025.

Reviews

Write a Review

Business Economics Questions & Answers

  Considering purchasing an automatic sprinkler system

Real Turf is considering purchasing an automatic sprinkler system for its sod farm by borrowing the entire $35,000 purchase price. The loan would be repaid with four equal annual payments at an interest rate of 12%/year.

  Either obtain or sustain a competitive advantage

Discuss the strategies that a particular company employed to either obtain or sustain a competitive advantage. For example, Microsoft arguably created a competitive advantage by offering a unique suite of products that now reside on many desktops. Th..

  Determine the equilibrium price and quantity

If the foreign country enters the market first, determine the equilibrium price and quantity. Will both countries produce. Show both average cost curves and the equilibrium.

  If interest rates or opportunity costs of investments

If interest rates or opportunity costs of investments, happened to be the same in both developed countries and emerging-economy nations, what could account for faster upward shifts in the latter group’s planned investment functions? Are stocks of pro..

  What is its economic service life in years

A new vehicle costs $20,000. Its salvage value decreases 15% per year. Its maintenance is estimated to be $700 at the end of year 1, $1,400 at the end of year 2 etc. At a MARR of 10%, what is its economic service life in years?

  The effectiveness of pay for performance plans note

The Effectiveness of Pay for Performance Plans Note: paper must be a minimum of 3 full double-spaced pages and a maximum of 5 pages. You may use your textbook as a source, but you must have a minimum of 3 non-text sources as well. Please document you..

  Built-in swimming pool installed in his backyard

Below are three parcels of real property A, B and C. B wants to have a built-in swimming pool installed in his backyard. In order to run the water line directly from the main in the street to the site, the line must run over his neighbor’s property. ..

  Draw demand-supply curves for market for pediatric visits

Draw the demand and supply curves for the market for pediatric visits. Label the curves and the axes with titles, and calculate and label the equilibrium price and quantity.

  Describe three of the key problems that friedman identifies

What does Friedman mean when he says the Earth is becomming "hot, flat, and crowded?" Describe three of the key problems that Friedman identifies in the book and explin why they re important.

  How does this variation affect people and corporations

How does the taxation change if the income was $220,874? How does this variation affect people and corporations? Use the graph functions of Word or Excel to assist you-You will need two graphs

  How government can use accommodating monetary

Show, using an AS-AD graph, how government can use accommodating monetary or fiscal policy to return output and unemployment to their long-run values.

  Qsuppose a firm has the total cost functioncq1002q12q2afind

q.suppose a firm has the total cost functioncq1002q12q2afind the firms marginal cost functionb find the firms average

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd