Problem 1 Suppose Carrie decides to lease a photocopier and open upa black-and-w
ID: 1173828 • Letter: P
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Problem 1 Suppose Carrie decides to lease a photocopier and open upa black-and-white photocopier service in her dorm room for use by faculty and students. Her total cost, as a function of the number of copies she produces per month, is given in the table below: # Photocopies per MonthlTotal CostFixed CostlVariable Cost|Total Revenue|Profit 0 1,000 2,000 3,000 4,000 5,000 6,000 $100 $110 $125 $145 $175 $285 a. Fill in the missing numbers in the table, assuming that Carrie can charge 5 cents per black-and-white copy. b. How many copies per month should Carrie sell? c. If the lease rate on the copier were to increase by S50 per month, how would that impact Carrie's profit maximizing level of output? How would this S50 increase in the lease rate affect Carrie's profit? What will she do when it is time to renew her lease?Explanation / Answer
The following formulas are used in filling up the table -
Fixed cost is that cost which occur even at zero production and remain constant with change in output. Hence 100 is fixed cost at all level as it is the cost which occurs even at 0 output level.
Variable cost = Total cost - fixed cost. For example at 0 units of output Total cost is $100 and Fixed cost is $100 then variable cost is 100-100 = 0
Total revenue = Output * price per copy. For example at 1000, TR is 1000*5 = 5000 cents or 50 dollars
Profit = TR - TC. For example at 0 output TR is 0*5 =0 and TC is 100 thus profit = 0-100 = -100
b) Carrie should sell the number of photocopies at which the profit is maximum which is 5000 photocopies per month at which the profit ($35) is maximum.
c) When the lease rate increases by $50 then the fixed cost will increase by $50 to which all the figures will change as follows -
As you can see at increased rate of lease carrie will not earn profit at any level. Hence at time of renewing the lease she will not lease it further.
Photocopies/month TC(dollars) FC(dollars) VC(dollars) TR(dollars) Profit(dollars) 0 100 100 0 0 -100 1000 110 100 10 50 -60 2000 125 100 25 100 -25 3000 145 100 45 150 5 4000 175 100 75 200 25 5000 215 100 115 250 35 6000 285 100 185 300 15Related Questions
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