Gamma Corp. manufactures and sells widgets for $6.00 each. Therefore, its total
ID: 3363832 • Letter: G
Question
Gamma Corp. manufactures and sells widgets for $6.00 each. Therefore, its total revenue, TR, from the sale of X widgets in a year is TR=$6X It costs Gamma $2 for materials and labour to produce each widget. In addition, Gamma expects to incur $80,000 of other costs during a year. Therefore, Gamma’s total costs for the year, TC, are expected to be TC =$2X+ $80,000 Gamma’s expected net income, NI, for the year will be NI =TR -TC =$6X - ($2X+$80,000) =$4X-$80,000 a. What is the slope and TR-intercept of a TR vs. X plot? b. What is the slope and TC-intercept of a TC vs. X plot? c. What is the slope and NI-intercept of an NI vs. X plot? d. Which of the three plotted lines is steepest? e. How much does NI increase for each widget sold? f. If Gamma were able to reduce its materials and labour cost to $1.75 per widget, state for each plotted line whether its slope would increase, decrease, or remain unchanged. Gamma Corp. manufactures and sells widgets for $6.00 each. Therefore, its total revenue, TR, from the sale of X widgets in a year is TR=$6X It costs Gamma $2 for materials and labour to produce each widget. In addition, Gamma expects to incur $80,000 of other costs during a year. Therefore, Gamma’s total costs for the year, TC, are expected to be TC =$2X+ $80,000 Gamma’s expected net income, NI, for the year will be NI =TR -TC =$6X - ($2X+$80,000) =$4X-$80,000 a. What is the slope and TR-intercept of a TR vs. X plot? b. What is the slope and TC-intercept of a TC vs. X plot? c. What is the slope and NI-intercept of an NI vs. X plot? d. Which of the three plotted lines is steepest? e. How much does NI increase for each widget sold? f. If Gamma were able to reduce its materials and labour cost to $1.75 per widget, state for each plotted line whether its slope would increase, decrease, or remain unchanged.Explanation / Answer
Solution-
We have following equations with us-
TR=$6X
TC = $2X+ $80,000
NI = $4X-$80,000
(a) intercept = 0 and slope = 6
(b) intercept =80000 and slope = 2
(c) intercept = -80000 and slope = 4
(d) That line will be steepest which has the highest magnitude of slope and here first equation of relationship between TR vs X has the highest slope 6 and thus will be the steepest one.
TY!
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