Assignment 7S

Suppose a firm has two types of customers but cannot tell which type of buyer the customer is before a purchase is made. If the

scoundrel [369]

Complete Question:

Suppose a firm has two types of customers but cannot tell which type of buyer a customer is before a purchase is made. One group of customers has an inverse demand of P = 100 – 10Q, while another group of customers has an inverse demand curve of P = 110 – 22.5Q. If the firm wanted to use a quantity discount pricing scheme, what prices should it set? Assume that the marginal cost of production is constant at $20.

A) The firm could charge $65 per unit for any quantity purchased or $60 per unit if buying 4 or more units.

B) The firm could charge $50 per unit for any quantity purchased or $40 per unit if buying 8 or more units.

C) The firm could charge $25 per unit for any quantity purchased or $20 per unit if buying 2 or more units.

D) The firm could charge $85 per unit for any quantity purchased or $75 per unit if buying 6 or more units.

Answer:

Option A. The firm could charge $65 per unit for any quantity purchased or $60 per unit if buying 4 or more units.

Explanation:

<u>Group One Customers:</u>

We will find the price and quantity by using the following relationship:

Marginal Revenue = Marginal Cost

But the first step would be to calculate marginal revenue.

<u>Step1: Calculate Marginal Revenue</u>

The price and quantity relation of group one customers is given as under:

P = 100 - 10Q

Now we will use total revenue equation which is given as under:

Revenue = Price * Quantity

Here

Price = 100 - 10Q

By putting this in the above equation, we have:

Revenue = (100 - 10Q) * Q

Revenue = 100Q - 10Q^2

Taking derivative on both sides we have:

Marginal Revenue = 100 - 2*10*Q = 100 - 20Q

Now as we know that:

Marginal Revenue = Marginal Cost

Here

Marginal Revenue = 100 - 20Q

Marginal Cost = $20

By putting values, we have:

$100 - 20Q = $20

$100 - $20 = 20Q

Q = $80 / $20 = <u>4 Units</u>

Now putting this value in the price equation we have:

Price = $100 - 10*4 = <u>$60</u>

<u>Group Two Customers:</u>

We will find the price and quantity by using the following relationship:

Marginal Revenue = Marginal Cost

But the first step would be to calculate marginal revenue.

<u>Step1: Calculate Marginal Revenue</u>

The price and quantity relation of group one customers is given as under:

P = 110 – 22.5Q

Now we will use total revenue equation which is given as under:

Revenue = Price * Quantity

Here

Price = 110 - 22.5Q

By putting this in the above equation, we have:

Revenue = (110 - 22.5Q) * Q

Revenue = 110Q - 22.5Q^2

Taking derivative on both sides we have:

Marginal Revenue = 110 - 2*22.5*Q

Marginal Revenue = 110 - 45Q

Now as we know that:

Marginal Revenue = Marginal Cost

Here

Marginal Revenue = 110 - 45Q

Marginal Cost = $20

By putting values, we have:

$110 - 45Q = $20

$110 - $20 = 45Q

Q = $90 / $45 = <u>2 Units</u>

Now putting this value in the price equation we have:

Price = $110 - 22.5*2 = <u>$65</u>

<u></u>

<h2><u>The data extracted from the above two scenario is as under:</u></h2><h2><u>For Group 1, Price is $60 and Quantity is 4 Units</u></h2><h2><u>For Group 2, Price is $65 and Quantity is 2 Units</u></h2><h2><u>Hence the option A is correct.</u></h2>

7 0

3 years ago

Wenig Inc. has some material that originally cost $73,500. The material has a scrap value of $45,600 as is, but if reworked at a

Lady_Fox [76]

Answer:

It gives the increment of $5,900.

Explanation:

For computing the increment effect, the following things is need to be considered.

1. Incremental sales of reworking cost = Sales price - rework cost

= $58,100 - $6,600

= $51,500

2. Scrap value = $45,600

As in the give question, the incremental value is computed based on reworking rather than scrap value. So, the scrap value amount is to be deducted from the incremental sales of reworking cost.

The amount is equals to

= $55,100 - $45,600

= $5,900

Thus, it gives the increment of $5,900.

8 0

3 years ago

The following information relating to a company's overhead costs is available. Col1 = Actual total variable overhead, Actual tot

Free_Kalibri [48]

Answer:

A) $2,000 favorable

Explanation:

Actual total variable overhead = $ 73,000

Actual total fixed overhead = $ 17,000

Budgeted variable overhead rate per machine hour = $ 2.50

Budgeted total fixed overhead = $ 15,000

Budgeted machine hours allowed for actual output = 30,000

Budgeted variable overhead = $ 2.50 x 30,000 = $ 75,000

Variable overhead variance = Budgeted variable overhead - Actual total variable overhead

Variable overhead variance = $ 75,000 - $ 73,000 = $ 2,000

Since the actual value is under the budgeted value, the variable overhead variance is $2,000 favorable.

5 0

3 years ago

Bigham Corporation, an accrual basis calendar year taxpayer, sells its services under 12- and 24-month contracts. The corporatio

Andreas93 [3]

Answer:

12 months

2020 $22,400

2021 $22,400

24 months

2020 $22,400

2021 $44,800

Explanation:

Calculation to Determine the income to be recognized in taxable income in 2020 and 2021.

Length of Contract

12 months

2020 Income=$44,800 * 6/12=$22,400

2021 Income=$44,800 * 6/12=$22,400

24 months

2020 Income=$89,600 *6/24=$22,400

2021 Income =$89,600 *12/24=$44,800

Therefore the income to be recognized in taxable income in 2020 and 2021 will be:

12 months

2020 $22,400

2021 $22,400

24 months

2020 $22,400

2021 $44,800

6 0

3 years ago

Your friend currently works as an accountant at a public accounting firm in the small town of Beaver Falls, Pennsylvania. He is

Papessa [141]

Answer:

A. your friend most likely should not be quite so excited because the extremely high cost of living in New York City means his real salary increase will be less than he imagined.

Explanation:

Here are the options to this question :

A. your friend most likely should not be quite so excited because the extremely high cost of living in New York City means his real salary increase will be less than he imagined.

B. your friend has no reason to be excited because higher pay implies more job responsibilities and more working hours.

C. your friend has every reason to be excited because he will be getting paid 120% of what he used to be paid.

D. your friend has reason to be excited because in a bigger city he will have more things to do and his higher salary will allow him to spend on those activities.

Cost of living in a big town is higher than living in a small town. Even though the nominal income of my friend has increased, the real income might not have increased due to the high cost of living in a big city.

Nominal income is the money income being earned. My friend's nominal income would increase from $50,000 to $60,000 if he takes the new job.

Real income is the purchasing power of income

5 0

3 years ago