Answer to Question #64150 in Economics of Enterprise for JIER

Question

The firm fixed costs is RM100,00 per year. Management expects to sell 2,000 units per year and at that rate of output, TVC will be RM50,000. The firm uses cost-plus pricing to earn a target rate of return on its RM200,000 investment. If the price is set at RM100, what is the target rate of return

Answer 1

TFC = 100,00*2,000 = 200,000,00
TC = TVC + TFC = 200,000 + 50,000 = 250,000
If price = 100,00, then the real target rate of return is TC + Price*Q = 250,000 + 100,00*2,000 = 450,000.