# 8 and 9 problems

## Project Description:

8-1p) the automotive supply company has a small plant that produces speedometers exclusively. its annual fixed cost are \$30,000, and its variable cost are \$10 per unit. it can sell a speedometer for \$25.
a) how many speedometers must the company sell to break even?
b) what is the break-even revenue?
c) the company sold 3,000 units last year. what was their profit?
d) next year's fixed costs are expected to rise to \$37,500. what will be the break-even quantity?
e) if the company will sell the number of units obtained in part "d" and wants to maintain the same profit as last year, what will its new price have to be?

8-8) the saline company produces and sells rock salt. its annual fixed cost was \$10,000. during the past year, the company sold 8,000 bags of its product. it estimates that at this level of sales its degree of operating leverage is 1.5.
a) how much was saline's profit last year?
b) at which level of production would the company just break-even?

9-5p) a phenomenon in the retail merchandising of food and clothing in the uited states and the united kingdom is growing popularity of private-label (also called store-brand) products. these products are priced at lower level than premium national brands. use the concepts of price elasticity and relevant cost to explain the profitability of these products from point of view of:
a) the retail stores sell these private-label products.
b) the manufactures of these privte-label products.
if you were the manager of a national premium brand, what would you do to fight the growing competition of private label?

9-8p) suppose there are three firms with the same individual demand function. this function is q=1,000 - 40p. suppose each firm has a different cost function. these functions are:
firm 1: 4,000 +5q
firm 2: 3,000 +5q
firm 3: 3,000 +7q

a) what price should each firm charge if it wants to maximize its profit (or minimize its loss)?
b) explain why the answer to the preceeding question indicates that two of the firms should charge the same price and the third should charge higher.
c) which firms will be most vulnerable to a price war? explain.
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Price Type: Negotiable

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