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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