Question

A firm believes a product’s sales volume (S) depends on its unit selling price (P) as S = $100? P. The production cost (C) is $1000 + 10S.

(a) Draw a graph with the sales volume (S) from 0 to

100 on the x axis, and total cost and total income

from $0 to $2500 on the y axis. On the graph

draw the line C = $1000 + 10S. Then plot the

curve of total income.Mark the breakeven points

on the graph.

(b) Determine the breakeven point (lowest sales volume

at which total sales income just equals total

production cost). (Hint: This may be done by

trial and error or by using the quadratic equation

to locate the point at which profit is zero.)

(c) Determine the sales volume (S) at which the

firm’s profit is a maximum. (Hint: Write an

equation for profit and solve it by trial and error,

or as a minima–maxima calculus problem

Answer 1