Draw a cash flow diagram for the problem. A company manufactures electrical metering devices that monitor...

Draw a cash flow diagram for the problem.

A company manufactures electrical metering devices that monitor power quality. The company’s fixed cost is $68,000 per month. The variable cost is $80 per metering device. The selling price per device can be modeled by S = 170 – 0.05 Q where S is the selling price and Q is the number of metering devices sold. How many metering devices must the company sell per month in order to realize a maximum profit?

Solutions

Expert Solution

Fixed cost = 6

Variablecost = 80

Total cost of producing Q units is 68,000 + 80Q

S = 170 - 0.05Q

Total Revenue = S * Q = 170Q - 0.05Q^²

Profit is maximized when marginal revenue (derivative of total revenue with respect to Q) = marginal cost (derivative of total cost with respect to Q)

170 - 0.1Q = 80

Q = 900

Thus, company must sell 900 metering devices to maximize their profit.

Rahul Sunny answered 1 year ago

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