Answer:
Please see below.
Explanation:
a) Profit Function
A profit function is a mathematical relationship between a firm's total profit and output. It equals total revenue minus total costs, and it is maximum when the firm's marginal revenue equals its marginal cost.
b) Marginal Cost
A conventional marginal cost is incremented by one unit; that is, it is the cost of producing one more unit of a good. Intuitively, marginal cost at each level of production includes the cost of any additional inputs required to produce the next unit.
c) Break-even point per unit
= Fixed Cost / Contribution margin per unit
where as;
Fixed Cost = $70000
Contribution margin per unit = (Sale price per unit - production cost per unit)
= ($20 - $13)
= $7
Break-even point per unit = 70000 / 7
= 10000
So, the manufacturer has to sell at least 10,000 units in order to cover it's fixed and production costs.
d) Production Level of 2000 units
Sales price per unit = $20
Production cost per unit = $13
Gross Profit / (Loss) per unit = $7
So if, 2000 units are produced,
Gross Profit / (Loss) = 7(2000)
Gross Profit / (Loss) = 14000
Net Profit / (Loss) = Gross Profit - Fixed Cost
Net Profit / (Loss) = 14000 - 70000
Net Profit / (Loss) = -56000
Hence to production level of 2000 units corresponds to a loss of $56,000
e) Average cost per unit
Total cost of production / the number of units produced
where as ;
Total cost of production = Fixed Cost + Production Cost
Total cost of production = 70000 + (15000)13
Total cost of production = 70000 + 195000
Total cost of production = 265000
So,
Average cost per unit = 265000 / 15000
Average cost per unit = $17.67
Average cost per unit = $18
Hence to production level of 15000 units corresponds to an average cost of $18 per unit.
