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In order to produce a new product, a firm must lease equipment at a cost of...

In order to produce a new product, a firm must lease equipment at a cost of $43,000 per year. The managers feel that they can sell 8,250 units per year at a price of $28. What is the highest variable cost that will allow the firm to at least break even on this project? (Round your answer to 2 decimal places.)

Marginal Cost ______

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Answer #1

Fixed Cost = $43000

Lets take, Variable Cost = X

Total units sold per year = 8250 units

Total variable cost all this units = X * 8250 = 8250 X

Total revenue = 28* 8250 = 231000 (To achieve at least break even ponit, the total profit is zero)

That is, 0 = 231000 - (43000 + 8250 X )

8250 X = 231000 - 43000

X = 188000 / 8250 = 22.7878

So that the highest variable cost that will allow the firm to at least break even on this project is $ 22.78

Variable Cost / Marginal Cost = $ 22.78

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