Question

A firm produces 10,000 units of output per month. Its fixed costs are $25,000 per month....

A firm produces 10,000 units of output per month. Its fixed costs are $25,000 per month. Its marginal costs per unit are constant at $5. What is the firm’s break-even price? What would be its break-even price if it sells 25% more output?

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Answer #1

total revenue =price * quantity=P*10000

total cost =fixed cost +variable cost=25000+VC

variable cost =average variable cost *quantity=AVC*10000

marginal cost is equal to average variable cost if the marginal cost is constant.

variable cost =average variable cost *quantity=AVC*10000=5*10000

the break even is at

Total revenue =total cost

P*10000=5*10000+25000=75000

P=$7.5

the price is $7.5

---------------

if the quantity is 25% extra the

Q=10000*1.25=12500

P*12500=12500*5+25000=87500

P=7

the price is $7

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