# Cliff’s Cams (CC) makes cams (

Cliff’s Cams (CC) makes cams (surprise!). The average productioncost per cam is estimated at \$40 + 15/2x (where x is the number ofcams produced and sold). CC can currently sell 20 cams at \$80 each.What is the current profit of the firm? What is the marginal costof producing one more cam? If a new buyer offers to buy anadditional 10 cams at \$60 each, then what is the new firm profit?What if our current customers then demand the same discount, whatis firm profit?

Currently CC is manufacturing and selling 20 Cams and selling itat \$80 per Cams

Cost of producing 20 Cams

= Number of cams* ( \$40 + 15/2*20) =20 [ \$40 + \$0.375 0] = 20 [\$ 40.375 ] =807.5

Each can is sold at \$80 each.

Total sales value of 20 Cans : \$80* 20 Cams = \$1600

Total Profit on sale of 20 cams = Total Sales value – TotalCost

= \$1600 – \$807.5 = \$ 792.5

Current Profit of Firm is \$792.5

Marginal Cost of producing 1 more Cam

Total Cost for producing 21 cams

= 21 [ \$40 + 15/2*21 ]

= 21 [ \$40 + \$0.3571 ]

= \$847.5

Marginal cost of producing one more Cam

= Total Cost to produce 21 cams – Total cost of producing 20Cams

= \$847.5 – \$807.5

= \$40

Currently Firm is producing 20 Cams and a new customer for 10Cams is being approached then

Cost of producing 10 additional cams is

= Total cost of producing 30 cams – Total cost of producing 20cams

= [30* ( \$40 + 15/2*30) ] –

= \$1207.5 – \$807.5

= \$400

Profit on Sale of 10 Cams

= Sale Value – Cost value

= [10*\$60] – \$400

= \$200

Selling price for 10 Cams is \$60 and if our existing customersfor 20 cams demand for same discount then amount of discountprovided will be

= \$20 for each cam

=\$20 * 20 cam

=\$ 400

Firms New profit

= [ Existing previous profit – Discount ] + Additional profit onsale of 10 Cams

= [ \$ 792.5 – \$ 400 ] + \$ 200

= \$ 592.5

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