A laptop manufacturer can produce laptops at a cost of $400 per unit and incurs a...

A laptop manufacturer can produce laptops at a cost of $400 per unit and incurs a fixed cost of $100,000 which is independent of the quantity produced. Currently the selling price of a laptop is $1400 and the resulting demand (or quantity sold, since both are the same) is 220,000 units. It is also known that a $2 decrease in price will increase the demand by 200 units. Assume the demand function is linear and fully known.

A. What is the maximum (highest) profit?

B. Assuming there is no fixed cost is (so fixed cost is $0 instead of $100,000), how high can the variable cost (which is $400 per unit currently) go so that the laptop manufacturer at least breaks even (or equivalently makes a non-negative maximum profit)?

Solutions

Expert Solution

Ans:

Option 1 ( Selling 220,000 laptops at $1,400 per laptop)

Fixed cost: $1,00,000

Variable cost: $400 per laptop.

Total Variable cost: $400*220,000= $88,000,000

Total Cost: $88,100,000

Totral Sale price: 220,000*$1,400= $308,000,000

Profit: $308,000,000-$88,100,000= $219,900,000

Option 2 ( Selling 220,200 laptops at $1,398 per laptop)

Fixed cost: $1,00,000

Variable cost: $400 per laptop.

Total Variable cost: $400*220,200= $88,080,000

Total Cost: $88,180,000

Totral Sale price: 220,200*$1,398= $307,839,600

Profit: $307,839,600-$88,180,000= $219,659,600

So option 1 is better.

If Fixed cost is nil, Variable cost can be a maximum of $1,400 per unit. Till $1,400 variable cost no loss will be suffered by the manufacturer. So the brake even variable cost will be $1,400 in case of $0 fixed costs.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

in a random sample of 8 Laptops, the mean repair cost per laptop was $90.46 and...

in a random sample of 8 Laptops, the mean repair cost per laptop was $90.46 and the standard deviation was $19.30. Assume the variable is normally distributed and construct a 90% confidence interval forμ. Round your answer two decimal place

If there is an increase in the popularity of laptops and the cost of making laptop...

If there is an increase in the popularity of laptops and the cost of making laptop becomes cheaper also for the sellers, then what will happen to the New Equilibrium price and quantity sold (using Supply and Demand curve):

A company owns 400 laptops. Each laptop has an 8% probability of not working. You randomly...

A company owns 400 laptops. Each laptop has an 8% probability of not working. You randomly select 20 laptops for your salespeople. 1.What is the likelihood at most 6 will be broken? 2. What is the likelihood that less than 18 will be broken? 3. What is the likelihood that more than 3 will be broken?

Consider that your profit-maximizing quantity of 400 can be produced at an average cost per unit...

Consider that your profit-maximizing quantity of 400 can be produced at an average cost per unit of $10 and sold for a market price of $16. What is your profit per unit? $ What is your total profit? $

You can produce 1,000 umbrellas at a production cost of $1.75 per unit. Alternatively, you may...

You can produce 1,000 umbrellas at a production cost of $1.75 per unit. Alternatively, you may produce 3,000 umbrellas at a cost of $2.25 per unit. Umbrella sales this year are highly dependent on weather, and you believe there is a 0.62 chance of high demand due to bad weather, and a (1-0.62) chance of low demand. If there is high demand, you can sell the umbrellas for $4, and if there is low demand, you can only get $2...

You can produce 1,000 umbrellas at a production cost of $1.75 per unit. Alternatively, you may...

You can produce 1,000 umbrellas at a production cost of $1.75 per unit. Alternatively, you may produce 3,000 umbrellas at a cost of $2.25 per unit. Umbrella sales this year are highly dependent on weather, and you believe there is a 0.2 chance of high demand due to bad weather, and a (1-0.2) chance of low demand. If there is high demand, you can sell the umbrellas for $4, and if there is low demand, you can only get $2...

A monopolist produces a product with a constant marginal cost equal to $400 per unit and...

A monopolist produces a product with a constant marginal cost equal to $400 per unit and a fixed cost of $80000. The demand for the product is Q= 500-0.5*P. The monopolist’s maximal profits are equal to a) $0.00 b) $5000.00 c) $45000.00 d) None of the above.

4. If a product can be sold for $850 per unit, the variable cost per unit...

4. If a product can be sold for $850 per unit, the variable cost per unit is $380 and the fixed costs are $2,350,000, how many units must be produced and sold to achieve the breakeven? Show your calculations. (1 point)

Honeywell manufacturer of fireplaces, had planned to produce and sell 2,500 units at $105.00 per unit....

Honeywell manufacturer of fireplaces, had planned to produce and sell 2,500 units at $105.00 per unit. Budgeted variable manufacturing costs per unit are $20.00. Honeywell pays its salespeople a 5% sales commission, which is the only non-variable manufacturing cost for the company. Fixed costs are budgeted as follows: manufacturing, $40,000 and marketing, $30,000. Actual financial results for the period were as follows. Sales volume was up at 2,750 units sold and actual sales revenue for the period was $260,000. Fixed...

Problem 19-04 The manufacturer of a product that has a variable cost of $2.60 per unit...

Problem 19-04 The manufacturer of a product that has a variable cost of $2.60 per unit and total fixed cost of $130,000 wants to determine the level of output necessary to avoid losses. What level of sales is necessary to break-even if the product is sold for $4.35? Round your answer to the nearest whole number. _____ units What will be the manufacturer’s profit or loss on the sales of 104,000 units? Round your answer to the nearest dollar. $...

Subjects