Question

In: Economics

Graphic Tees is a design company that sells custom printed t-shirts. The firm sells printed t-shirts...

Graphic Tees is a design company that sells custom printed t-shirts. The firm sells printed t-shirts under a block pricing scheme that charges $16 per t-shirt if the customer buys up to 10 t-shirts and $13 if they buy 11 to 20 t-shirts. The demand curve is Q = 1200 - 50P, and the marginal cost of a t-shirt is $7. What are the profits for Graphic Tees under this block pricing scheme?

Solutions

Expert Solution

Let Block 1 be where P1 = 16, Q1 is the quantity sold, Π1 be the profit and TC1 be the total cost.

Let Block 2 be where P2 = 13, Q1 is the quantity sold, Π2 be the profit and TC2 be the total cost.

Quantity sold in block 1 is, Q1 = 1200 - 50P and in block 2: Q2 = 1200 - 50P

Substituting values of P, we get quantity in the two blocks.

Q1 = 1200 - 50 * 16 =1200 - 800 =400 Q2 = 1200 - 50 * 13 = 1200 - 650 = 550

Total revenue (TR) = Price * quantity. Therefore,

TR1 = P1 * Q1 = 16 * 400 = 6400 TR2 = 13 * 550 = 7150

Profit (Π) = Total revenue - Total cost (we know the marginalcost (MC). Total cost = MC * Q TC1 = 7*400 = 2800; TC2 = 7*550 = 3850)

Π1 = 6400 - 2800 = 3600   Π2 = 7150 - 3850 = 3300

So, in block 1 (where price = 16), firm will sell 400 units of t-shirts and make $ 3600 profits.

In block 2, (where price= $13) firm will sell 550 units of t-shirts and make a profit of $3300

  

Rahul Sunny answered 8 months ago
Next > < Previous

Related Solutions

Individual Problems 5-1 George's T-Shirt Shop produces 8,000 custom-printed T-shirts per month. George's fixed costs are...
Individual Problems 5-1 George's T-Shirt Shop produces 8,000 custom-printed T-shirts per month. George's fixed costs are $24,000 per month. The marginal cost per T-shirt is a constant $9. George's break-even price is _______ per shirt. Suppose George sells 50% more T-shirts per month. At this quantity of shirts, George's break-even price is _______ per shirt. Individual Problems 5-2 Suppose an initial investment of $80 will return $30/year for three years (assume the $30 is received each year at the end...
Super-Tees Company plans to sell 11,000 T-shirts at $24 each in the coming year. Product costs...
Super-Tees Company plans to sell 11,000 T-shirts at $24 each in the coming year. Product costs include: Direct materials per T-shirt $8.40 Direct labor per T-shirt $1.68 Variable overhead per T-shirt $0.72 Total fixed factory overhead $41,000 Variable selling expense is the redemption of a coupon, which averages $1.20 per T-shirt; fixed selling and administrative expenses total $15,000. 1. Calculate the following values: Round dollar amounts to the nearest cent and round ratio values to three decimal places (express the...
Company Gamma produces and sells plain t-shirts but is considering entering the market of coloured t-shirts....
Company Gamma produces and sells plain t-shirts but is considering entering the market of coloured t-shirts. The plain t-shirts produced by Company Gamma costs $1 per unit and are sold for $5 per unit. If Company Gamma starts producing and selling coloured t-shirts, the cost is expected to be $1.20 per unit and sold for $6 per unit. Required: Show whether it is worth processing the plain t-shirts into coloured t-shirts. Company Gamma has found a more efficient way of...
Variable Costs, Contribution Margin, Contribution Margin Ratio Super-Tees Company plans to sell 18,000 T-shirts at $21...
Variable Costs, Contribution Margin, Contribution Margin Ratio Super-Tees Company plans to sell 18,000 T-shirts at $21 each in the coming year. Product costs include: Direct materials per T-shirt   $7.35 Direct labor per T-shirt   $1.47 Variable overhead per T-shirt   $0.63 Total fixed factory overhead   $40,000 Variable selling expense is the redemption of a coupon, which averages $1.05 per T-shirt; fixed selling and administrative expenses total $19,000. Required: 1. Calculate the following values: Round dollar amounts to the nearest cent and round...
Variable Costs, Contribution Margin, Contribution Margin Ratio Super-Tees Company plans to sell 18,000 T-shirts at $21...
Variable Costs, Contribution Margin, Contribution Margin Ratio Super-Tees Company plans to sell 18,000 T-shirts at $21 each in the coming year. Product costs include: Direct materials per T-shirt $7.35 Direct labor per T-shirt $1.47 Variable overhead per T-shirt $0.63 Total fixed factory overhead $43,000 Variable selling expense is the redemption of a coupon, which averages $1.05 per T-shirt; fixed selling and administrative expenses total $11,000. Required: 1. Calculate the following values: Round dollar amounts to the nearest cent and round...
Variable Costs, Contribution Margin, Contribution Margin Ratio Super-Tees Company plans to sell 10,000 T-shirts at $24...
Variable Costs, Contribution Margin, Contribution Margin Ratio Super-Tees Company plans to sell 10,000 T-shirts at $24 each in the coming year. Product costs include: Direct materials per T-shirt $8.40 Direct labor per T-shirt $1.68 Variable overhead per T-shirt $0.72 Total fixed factory overhead $40,000 Variable selling expense is the redemption of a coupon, which averages $1.20 per T-shirt; fixed selling and administrative expenses total $15,000. Required: 1. Calculate the following values: Round dollar amounts to the nearest cent and round...
Variable Costs, Contribution Margin, Contribution Margin Ratio Super-Tees Company plans to sell 19,000 T-shirts at $25...
Variable Costs, Contribution Margin, Contribution Margin Ratio Super-Tees Company plans to sell 19,000 T-shirts at $25 each in the coming year. Product costs include: Direct materials per T-shirt $8.75 Direct labor per T-shirt $1.75 Variable overhead per T-shirt $0.75 Total fixed factory overhead $42,000 Variable selling expense is the redemption of a coupon, which averages $1.25 per T-shirt; fixed selling and administrative expenses total $12,000. Required: 1. Calculate the following values: Round dollar amounts to the nearest cent and round...
Variable Costs, Contribution Margin, Contribution Margin Ratio Super-Tees Company plans to sell 13,000 T-shirts at $24...
Variable Costs, Contribution Margin, Contribution Margin Ratio Super-Tees Company plans to sell 13,000 T-shirts at $24 each in the coming year. Product costs include: Direct materials per T-shirt $8.40 Direct labor per T-shirt $1.68 Variable overhead per T-shirt $0.72 Total fixed factory overhead $45,000 Variable selling expense is the redemption of a coupon, which averages $1.20 per T-shirt; fixed selling and administrative expenses total $13,000. Required: 1. Calculate the following values: Round dollar amounts to the nearest cent and round...
SallyMay, Inc., designs and manufactures T-shirts. It sells its T-shirts to brand name clothes retailers in...
SallyMay, Inc., designs and manufactures T-shirts. It sells its T-shirts to brand name clothes retailers in lots of one dozen. SallyMay's May 2013 static budget and actual results for direct inputs are as follows: Static Budget Number of T-shirt lots (1 lot1 dozen) 400 Per Lot of T-shirts: Direct materials 14 meters at $1.70 per meter$23.80 Direct manufacturing labor 1.6 hours at $8.10 per hour $12.96 Actual Results Number of T-shirt lots sold 450 Total Direct Inputs: Direct materials 6,840...
My company sells California t-shirts to Bay Area tourists, and this is a perfectly competitive market....
My company sells California t-shirts to Bay Area tourists, and this is a perfectly competitive market. My cost function is given by ?(?) = ? ? ? ? . a) Find my profit-maximizing quantity produced if the market price for my California t-shirts is $25. What would my profits be? b) The COVID-19 pandemic reduces willingness and ability to travel and visit the Bay Area. At the same time, t-shirt companies have to pay for personal protective equipment for their...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT