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3 years ago

How does a subsidy provided for a good affect consumers?

Business

1 answer:

Orlov [11]3 years ago

7 0

Answer: D. It increases consumers’ incomes and encourages consumers to buy the good

Explanation:

A subsidy is an amount of money that is given by the government to producers or farmers so as to increase the production of a particular good and also to reduce the price of the good.

Subsidies affect consumers as it increases consumers’ incomes and encourages consumers to buy the good. This is because the subsidized goods will be sold at a cheaper price which means that the income of the consumer is increased and also encourages more purchases of the good.

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9) A firm is selling two products, chairs and bar stools, each at $50 per unit. Chairs have a variable cost of $25, and bar stoo

Ksivusya [100]

Answer:

Ans.

a) BEP (units) =727; BEP($)= $36,350

b) BEP (units) =690; BEP($)=$34,500

Explanation:

Hi, in order to find the break even point in units, we have to use the following equation in both cases.

$BEP(Units)=\frac{Fixed Costs}{(AveragePrice-Average VariableCost)}$

Since the sales mix is different in both scenarios, let´s find the average variable cost for a) (notice that there is no need to find the average price because both, the stool and the chair have the same price)

$AverageVariableCost=25*\frac{1}{2} +20*\frac{1}{2} =22.5$

Now, the fraction aside each of the price is 1/2 in both cases, because the sale mix 1:1 means that the company makes 1 stool for every chair it makes, in fraction that is, for every 2 items that the company makes, 1 is a stool (1/2) and 1 is a chair (1/2).

So, our BEP in units is:

$BEP(Units)=\frac{20,000}{(50-22.5)} =727$

$BEP(Dollars)=727*50=36,350$

That means that the company has to make 727 units, which 363 are chairs and 364 are stools (you could say 364 chairs and 363 stools too, because we are heavily rouding numbers). This is represented in $36,350 in sales.

Now, for b), our average cost is:

$AverageVariableCost=25*\frac{1}{5} +20*\frac{4}{5} =21$

As you can see, the fraction changed, that is because of the new sales mix of 1:4, that is: the company makes 4 stool for every chair it makes, in fraction that is, for every 5 items that the company makes, 4 are a stools (4/5) and 1 is a chair (1/5).

Now, let´s find our new BEP in units and dollars.

$BEP(Units)=\frac{20,000}{(50-21)} =690$

$BEP(Dollars)=690*50=34,500$

That means that the company has to make 690 products, which 138 are chairs and 552 are stools. This is represented in $34,500 in sales.

Best of luck.

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