Question
In: Economics
Suppose that a company has estimated the average variable cost of producing its product to be...
Suppose that a company has estimated the average variable cost of producing its product to be $10. The firm’s total fixed cost is $100,000. If the company produces 1,000 units and its pricing strategy is to add a 35 percent markup, what price would the company charge?
Solutions
Expert Solution
AVC = 10. For Q = 1000, VC = 10*1000 = $10000. Fixed cost FC = 100,000. Hence total cost is 110,000.
Marginal cost is equal to ATC here = 110,000/1000 = $110
Markup = 0.35
0.35 = P - MC/P
0.35P = P - 110
110 = 0.65P
Price should be = 11/0.65 = 169.23.
Rahul Sunny answered 2 years agoRelated Solutions
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