A small factory producing a single product has weekly fixed costs of production of $2,112 and weekly variable costs of $52x + 3/4 x2, where x is the quantity produced. the capacity of the factory is about 600 units.
Past experience suggests that the product’s price and quantity are linked by the following demand equation: p = 200 - 1/4 x (p, x > 0) where p = $ price/unit and x = quantity sold. You are required to:
(a) Find the level of production at which revenue is maximized
(b) Find any break-even points
(a) The level of production at which revenue is maximized is:
"MR = TR'(x) = (p\u00d7x)' = 200 - 0.5x = 0,"
0.5x = 200,
x = 400 units.
(b) The break-even points are:
"x = FC\/(p - AVC) = 2,112\/(200 - 1\/4x - 52 - 3\/4x) =2,112\/(148 - x),"
"x^2 - 148x + 2,112 = 0,"
"x = (148 \\pm 116)\/2,"
"x_1 = 132" units, "x_2 = 16" units.
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