Question

Different companies may have or may choose to have different cost structures for the same product. Many companies try to lower total cost regardless of output but, if it were so easy, then it would already have been done. So, consider a change in cost structure which combines a 10 percent increase in fixed cost and a sufficient decrease in marginal cost which does not change BE.

a) How large is the required decrease in marginal cost?

b) Over what range of output does this combined change increase total cost?

c) Would this change make profits more or less sensitive to an unanticipated increase in

Answer 1

mainly each and every product have the cost which allocated based on fixed and variable basis. Fixed cost is a cost incurred irespective of the quanity constantwe are producting.it is constant always for total number of products.and having different on each products separately and the variable cost is made varies or fluctuate in total production of goods and it varies total base and constant in each on separately.
Here if the fixed cost increase 10% then that will affect the marginal cost means a cost incurred to additional one unit of production.

a) If a production the product need large decrease in the marginal cost then it should need to change in the variable cost .the marginal cost is calculated by way of difference between total cost and fixed cost.so if the total cost increase that affect the marginal cost also.

b) In long run range change only have the giving impact on the combined change of increase of total cost due to all cost is variable bases.

C) if the anticipated increase in total cost which can affect the profit and real contribution. If the decrease in variable cost ultimately affect the profit which also increase and the increase in varible cost of decreasing the sales value also lead to decrease in the profit.