Answer:
1. There is a loss of $10,000 at the production level of 10,000.
2. There is a profit of $10,000 at the production level of 14,000.
Explanation:
From the question, we have:
a = Fixed cost = $60,000
b = Variable cost per unit = $10
P = price per unit = $15
Therefore, we have:
a. What is the cost function.
The cost function can be stated as follows:
C = a + bY ............................... (1)
Where;
C = total cost
a = Fixed cost = $60,000
b = Variable cost per unit = $10
Y = production level
Substituting the relevant values into equation (1), we have:
C = 60,000 + 10Y <--------------- Cost function
b. What is the revenue function.
The revenue function can be stated as follows:
R = P * Y ...................... (2)
Where;
R = Total revenue
P = price per unit = $15
Y = production level
Substituting the relevant values into equation (2), we have:
R = 15 * Y ........................... <------------------ Revenue function
c. What is the profit function.
The profit function can be stated as follows:
Profit (loss) = R - C .......................... (3) <------------------- Profit function.
1. Compute the profit loss corresponding to production level of 10,000
This implies that;
Y = 10,000
C = 60,000 + (10 * 10,000) = $160,000
R = 15 * 10,000 = $150,000
Profit (Loss) = $150,000 - $160,000 = ($10,000)
Therefore, there is a loss of $10,000 at the production level of 10,000.
2. Compute the profit loss corresponding to production level of 14,000
This implies that;
Y = 14,000
C = 60,000 + (10 * 14,000) = 200,000
R = 15 * 10,000 = $210,000
Profit (Loss) = $310,000 - $200,000 = $10,000
Therefore, there is a profit of $10,000 at the production level of 14,000.
