Question

Two firms in the same industry sell their product at $8 per unit, but one firm...

Two firms in the same industry sell their product at $8 per unit, but one firm has TFC = $140 and AVC = $4.50 while the other has TFC’ = $250 and AVC’ = $3.00.

a. Determine the break even quantity of each firm.

b. Find the degree of operating leverage for each firm at Q = 60 and Q =75.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

a) Break even quantity is =Fixed cost/(P-AVC)

Firm 1 Break-even output = 140/(8-4.5) = 40

Firm 2 Break even output = 250/(8-3) = 50

b) Degree of operating leverage = (P - AVC)*Q/ (P - AVC)*Q - FC

Q=60

Firm 1 Operating leverage = 60*(8-4.5)/60*(8-4.5)-140 = 210/70 =3

Firm 2 Operating leverage = 60*(8-3)/60*(8-3)-250 = 300/50=6

Q=75

Firm 1 operating leverage = 75(8-4.5)/75*(8-4.5)-140 = 262.5/122.5 = 2.14

Firm 2 operating leverage = 75(8-3)/75(8-3)-250 = 375/125 = 3

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Two firms in the same industry sell their product at $6 per unit, but one firm...
Two firms in the same industry sell their product at $6 per unit, but one firm has TFC = $120 and AVC = $4.50 while the other has TFC’ = $250 and AVC’ = $3.50. a. Determine the breakeven quantity of each firm. b. Find the degree of operating leverage for each firm at Q = 125 and Q =150.
4. Two firms in the same industry sell their product at $12 per unit, but one...
4. Two firms in the same industry sell their product at $12 per unit, but one firm has TFC = $160 and AVC = $4 while the other has TFC’ = $285 and AVC’ = $2.50. a. Determine the breakeven quantity of each firm. b. Find the degree of operating leverage for each firm at Q = 35 and Q =40.
3.Assume that in a different competitive industry, there are 8 firms, each with a marginal cost...
3.Assume that in a different competitive industry, there are 8 firms, each with a marginal cost equal toMC = 20-10q +q2Average cost is minimized at q = 10 and AVC is minimized at q = 8 for each of these firms. Demand for the product is QD= 100-P a.Is this industry in long-run competitive equilibrium? Explain your answer. b.A new trade policy will open this industry to foreign competition for the first time. The world price is $10 (i.e., there...
Operating Leverage Income statements for two different companies in the same industry are as follows: Trimax,...
Operating Leverage Income statements for two different companies in the same industry are as follows: Trimax, Inc. Quintex, Inc. Sales $240,000     $375,000     Less: Variable costs 120,000     75,000        Contribution margin $120,000     $300,000     Less: Fixed costs 90,000     270,000        Operating income $30,000     $30,000     Required: 1. Compute the degree of operating leverage for each company. Trimax Quintex 2. Compute the break-even point in dollars for each company. Trimax, Inc. $ Quintex, Inc. $ Why is the break-even point for Quintex, Inc., higher? 3. Suppose...
Two firms, A and B, both produce brushes. The price of brushes is $1.30 each. Firm...
Two firms, A and B, both produce brushes. The price of brushes is $1.30 each. Firm A has total fixed costs of $450,200 and variable costs of 50 cents per brush. Firm B has total fixed costs of $260,000 and variable costs of 72 cents per brush. The corporate tax rate is 30%. If the economy is strong each firm will sell 1,502,000 brushes. If the economy enters a recession, each firm will sell 979,000 brushes. Calculate Firm A's degree...
Assume that a firm wants to add staplers to their product line and sell each unit...
Assume that a firm wants to add staplers to their product line and sell each unit for $15. Staplers cost $5 per unit to manufacture. Assuming incremental fixed costs are $10,000, what can we say with certainty about the project? A. If 1,000 units are sold, (cash break even), the project has a negative NPV. B. The project should be rejected. C. The project should be accepted. D. If 1,000 units are sold (cash break even), the project has a...
Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm...
Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has total fixed costs of $500,000 and variable costs of 50¢ per widget. Firm B has total fixed costs of $240,000 and variable costs of 75¢ per widget. The corporate tax rate is 40%. If the economy is strong, each firm will sell 1,200,000 widgets. If the economy enters a recession, each firm will sell 1,100,000 widgets. Calculate firm B's degree of operating...
Operating Leverage Income statements for two different companies in the same industry are as follows: Trimax,...
Operating Leverage Income statements for two different companies in the same industry are as follows: Trimax, Inc. Quintex, Inc. Sales $300,000     $337,500     Less: Variable costs 150,000     67,500        Contribution margin $150,000     $270,000     Less: Fixed costs 120,000     240,000        Operating income $30,000     $30,000     Required: 1. Compute the degree of operating leverage for each company. Trimax Quintex 2. Compute the break-even point in dollars for each company. Trimax, Inc. $ Quintex, Inc. $ Why is the break-even point for Quintex, Inc., higher? 3. Suppose...
Firm R has sales of 105,000 units at $2.02 per​ unit, variable operating costs of $1.71...
Firm R has sales of 105,000 units at $2.02 per​ unit, variable operating costs of $1.71 per​ unit, and fixed operating costs of $6,020. Interest is $10,130 per year. Firm W has sales of 105,000 units at $2.57 per​ unit, variable operating costs of $1.01 per​ unit, and fixed operating costs of $62,800. Interest is $17,100 per year. Assume that both firms are in the 40% tax bracket. a. Compute the degree of​ operating, financial, and total leverage for firm...
A homogenous good industry consists of two identical firms (firm 1 and firm 2). Both firms...
A homogenous good industry consists of two identical firms (firm 1 and firm 2). Both firms have a constant average total cost and marginal cost of $4 per unit. The demand curve is given by P = 10 – Q. Suppose the two firms choose their quantities simultaneously as in the Cournot model. (1) Find and plot each firm’s best-response curve. (Be sure to clearly label your curves, axes and intercepts.) (2) Find each firm’s quantity and profit in the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT