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 1 year ago

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