Economics 550 Essay

425 WordsAug 26, 20132 Pages
Vanorian Purley August 5, 2013 Economics 550 Check Your Understanding CHAPTER 9 3. Electrical generation study of 56 British firms: a. VC = AVC(Q) VC = 1.24Q + .0033Q2 + .0000029Q3 − .000046Q2Z − .026QZ + .00018QZ2 b. MC = 1.24 + .0066Q + .0000087Q2 − .000092QZ − .026Z + .00018Z2 c. Z = 150(thousand) kilowatts SRAVC = 1.24 + .0033Q + .0000029Q2 − .000046Q(150) − .026(150) + .00018(150)2 SRAVC = 1.39 − .0036Q + .0000029Q2 SRMC = 1.24 + .0066Q + .0000087Q2 − .000092Q(150) − .026(150) + .00018(150)2 SRMC = 1.39 − .0072Q + .0000087Q2 d. d(SRAVC)/dQ = 0 (condition for minimum SRAVC) = −.0036 + .0000058Q = 0 Q* = 620.7 (million) kilowatt-hours/year e. SRAVC = 1.39 − .0036(620.7) + .0000029(620.7)2 = .27 pence SRMC = 1.39 − .0072(620.7) + .0000087(620.7)2 = .27 pence The two are equal, as the MC slices up through the lowest point in the AVC curve 4. a. Reduction in price will cause the contribution margin to decrease, thus, breakeven point will increase. b. Increase in Direct Labor cost will increase the cost and will cost the contribution margin to decrease, thus, the breakeven point will increase. c. Installation of new ventilating equipment produced depreciation (fixed cost) which will decrease contribution margin, thus the breakeven point will increase. 5. A. Cool-Aire will incur a loss simply if its sales are below 33000, i.e. P(X<33000) or P(Z<((33000-40,000)/4000) = P(Z<-1.75) = 1 - P(Z<1.75) or about .04 using the z-score table. B. The second question is just the complement, i.e. P(Z>-1.75)=P(Z<1.75)=.96 CHAPTER 10 2. MTV and cable channels can have higher operating profits largely because they have lower costs and can reach very specific demographic groups quite easily. MTV and Nickleodeon are typically not paying high and uncertain prices for their shows. They air mainly reruns of proven

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