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Leokris [45]
3 years ago
9

If at optimum output of 1,000 units, the firm is incurring average variable cost per unit of $3, average fixed cost per unit of

$1.50, and selling its output at $7 per unit, total profit is Group of answer choices $1,500. $2,500. $250. $7,000.
Business
1 answer:
iVinArrow [24]3 years ago
8 0

Answer:

$2500

Explanation:

Given: Total output(quantity)= 1000 units.

           average variable cost per unit= $3

           Average fixed cost per unit= $1.5

           Selling price per unit is $7

We know, Profit= Total\ revenue - Total\ cost

First, lets find out total cost

Total cost= Total\ fixed\ cost+ Total\ variable\ cost

Remember, cost= average\ cost\times quantity

Fixed\ cost= \textrm{average fixed cost per unit}\times quantity

Fixed\ cost= 1.5\times 1000= \$ 1500

Variable\ cost= \textrm{average variable cost per unit}\times quantity

Variable\ cost= \$ 3\times 1000= \$ 3000

∴ Total cost= 1500+ 3000= \$4500

Now, finding total revenue.

Total\ revenue= selling\ price\times quantity

Total\ revenue= \$ 7\times 1000= \$ 7000.

Profit= Total\ revenue - Total\ cost

∴ Total profit= \$ 7000-\$ 4500= \$2500

Total profit= $2500

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a             b          c=1.085^-a             d=b*c      

1 $       1.62 0.921659 $       1.49      

2 $       1.74 0.849455 $       1.48      

3 $       1.86 0.782908 $       1.46      

4 $       1.98 0.721574  $       1.43      

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Then, we have to calculate the Present value of dividend after 5 years as follows:

Present value of dividend after 5 years=D5*(1+g)/(Ke-g)*DF5

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Current value of stock=Present value of dividend of next 5 years+ Present value of dividend after 5 years    

Current value of stock= $7.25+$59.22      

Current value of stock=$66.47        

The price does the​ dividend-discount model predict Colgate stock should sell for​ today is $66.47

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