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?
Answer:
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
"Our Prices Start at $11.99. As Our First Client, Use Coupon Code GET15 to claim 15% Discount This Month!!"
