Average / 2 5. Exercise 10.7 Royersford Knitting Mills, Led., sells a line of women's knit underwear. The firm now sells about 20,000 pairs a year at an average price of $20 each. Fixed costs amount to $120,000, and total variable costs equal $240,000. 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. The proposal to cut prices by 5 percent would total revenues from $400,000 to Total costs would be S and total profits would be $ If average variable costs are assumed to remain constant over a 10 percent increase in output, total profits after a 5 percent price cut would be Grade It Now Save & Continue Continue without saving