Question

In: Economics

"La Yuca" company produces raw material for the alcapurrias industry. It has fixed weekly costs of $ 4,000.00 plus variable costs per unit of $ 3.00. The raw material is sold in the market for $ 20.00 per package.

"La Yuca" company produces raw material for the alcapurrias industry.
It has fixed weekly costs of $ 4,000.00 plus variable costs per unit of $ 3.00. The raw material is sold in the market for $ 20.00 per package.

a) determine the total cost to produce # 2,000 packages

b) determine the cost per unit, average cost, for the # 2,000 packages

c) How much can the fixed cost go down if you want to make a profit of $ 3,000.00 per week?

Solutions

Expert Solution

We have TFC (Total Fixed Cost) = $ 4000

AVC (Average Variable Cost ) = $ 3

Total Cost = TFC + TVC ( Total Variable Cost)

TVC = AVC × Q

= 3 × 2000 = 6000

Total Cost (TC) = 4000 + 6000 = 10,000

Average Cost (AC) / Cost per Unit is = TC/Q

i.e 10,000/2000 = 5

Profit = Total Revenue - Total Cost

Total Revenue (TR) = P×Q

Price of each material = $ 20

Quantity sold is 2000

So TR = 20 × 2000 = 40000

So Profit = Total Revenue - Total cost

= ( 40,000 - 10,000)

= $ 30,000

The company already earns $30,000. Hence it doesn't need to reduce it's fixed cost to earn extra profits. It already earns × 10 the amount stated.

Rahul Sunny answered 2 years ago
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