Answer:
The change in revenue (differential revenue from the acceptance of the offer) will be $ 471600
Explanation:
The revenue represents the total sales of the product, regardless of the costs, then If the company produced initially Q units the initial revenue will be
Initial Revenue=total sales= P₁*Q₁
- Since the offer does not alter the domestic sales prices P₁ , the price P₁ remains constant.
- Since the sales does not affect normal production , the quantity sold to the domestic market Q₁ is also not affected ( i don't need to resign units to the domestic market to sell to the exporter)
then
New revenue= Revenue from the exporter + Revenue from the domestic market = Revenue from the exporter + Initial revenue
where Revenue from the exporter=P₂*Q₂ , P₂= price sold to the exporter and Q₂= units sold to the exporter
therefore the change in revenue will be
Change in Revenue= New revenue - Initial Revenue = Revenue from the exporter
Change in Revenue=P₂*Q₂=$18 /unit* 26200 unit = $ 471600
Note:
The profit represents the revenue, taking into account the costs. Then the change the initial profit will be
initial profit = P₁*Q₁ - (CF+CV*Q₁)
the New profit
New profit = P₂*Q₂+ P₁*Q₁ - [CF+CV*(Q₂+Q₁)]
and the change in profit
change in profit= New profit - initial profit = P₂*Q₂+ P₁*Q₁ - [CF+CV*(Q₂+Q₁)] -[P₁*Q₁ - (CF+CV*Q₁)]= P₂*Q₂ - CV*Q₂ = (P₂- CV)*Q₂ = ($18 /unit- $12 /unit)* 26200 unit = $ 156000
