Answer:
Let's assume 100 units per year is the break even point (in units).
<em>Break even point</em> is that level of sales revenue which covers all of the costs involved i.e. fixed and variable costs both.
Hence, <em>contribution = Fixed costs at Break Even Point</em>
<em>Contribution = Sales - Variable (Marginal) Costs</em> - ( Part A )
Hence, Contribution = $ 200 i.e. fixed costs
Now,
$ 200 = Sales - $ 10 ( From Part A)
Sales = $ 210
Now, <em>Shut down point</em> is that that where the firm is just capable of meeting its variable costs from the sales it has earned (price earned).
Hence, the price can go till $ 10 from $ 210 i.e. <em>$ 200</em> ( $ 210 - $ 10 ) below from the current level.
Hence, the <em>price can go $ 200 down before it is preferred to shut down by the firm.</em>
<em>For 1st part answer refer to the Explanation.</em>
Explanation:
(1)<em> </em><u><em>Fixed Costs</em></u>
<em>Fixed costs</em> refer to the expenses which are always have to be incurred by the business irrespective of the level of output produced. For example, a firm has to pay rent on land on which it is operating , pay CEO's compensation for managing role in the organization (constant part), charge depreciation on production tools and equipments and pay cleaning staff fixed salaries , irrespective of the level of output produced.
(2) <u><em>Variable ( Marginal costs) </em></u>
<em>Variable costs</em> are the costs which have a direct relation with the level of output produced by the firm. For example, <em>the more the no. of units produced </em>the more the labour charges paid, more the raw material payments made and the more the manufacturing related expenses etc and <em>vice-versa</em>.
(3) <u><em>Avoidable costs</em></u>
<em>Avoidable costs</em> are the costs which can be controllable i.e. the costs incurring can be avoided by the management. For example, <em>when there is slowdown in the economy, </em>growth<em> </em>and expansion costs can be avoided and production related costs can be cut (variable costs) etc.
For <em>Part 2</em> answer refer to the <em>"Answer"</em> at the top of the entire solution.
