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6 5 mnp company has seen its sales volume decline


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ECON 100B
PracticeQuestion…

5. MNP Company has seen its sales volume decline over the last few year
increase sales and profits, the firm is considering a price reduction on it
Most Popular firm currently sells 40,000 units of its production a year at an average p
Documents for unit. Fixed costs are $125,000. Current variable costs per unit are $2.5.
ECON 100B determined that the variable cost per unit could be reduced by $0.25 if p
could be increased by 5 percent (fixed costs would remain constant). Th
10 pages
elasticity of MNP products is -1.5.

(a) How much would MNP have to reduce the price in order to achie
increase in the quantity sold?


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(b) 쇳 and
What would the firm's (i) total revenue, (ii) total cost,
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before and after the price cut?

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AsummerI201
3Answers

UC Irvine
ECON 100B -…

Economics
100A Midterm

9 pages

MidtermExam
1SummerI2015
MNP should reduce the price by 5.00 – 4.84 = $0.16 in order to increas
+Answers
by 5 percent.

UC Irvine (b)
ECON 100B -…
Before: After:
Economics (i) TR1 = P1 x Q1 TR2 = P 2 x Q2
100A Midterm
= 5.00 (40,000) = 4.84 (42,051.3)
10 pages
= $200,000 = $203,528.3

(ii) TC1 = F1 + V1 (Q 1) TC2 = F 2 + V2 (Q2)

F1 = $125,000 F2 = F 1 = 125,000

V1 = $2.5/unit V2 = 2.5 - 0.25 = $2.25/unit


MidtermExam
2SummerI201
TC1 = 125,000 + 2.5(40,000) TC2 = 125,000 + 2.25(42,051
5+Answers
= $225,000 = $219,615.425.
UC Irvine
(iii) ο1 = TR1 - TC1 ο2 = TR 2 - TC2
ECON 100B -…

Economics = 200,000 - 225,000 = 203,528.3 – 219,615.425


100A Midterm
= - $25,000. = - $16,087.125
6 pages


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2

UC Irvine
ECON 100B -…

5 pages 6. Mary Graham worked as a real estate agent for Piedmont Prope
Her annual income is approximately $100,000 per year. Mary is consid
her own real estate agency. She expects to generate revenues during the
million. Salaries paid to her employees are expected to total $1.5 millio
expenses (i.e., rent, supplies, utility services) are expected to total $250
business Mary must borrow $500,000 from her bank at an interest rate
Equipment will cost Mary $50,000. At the end of one year, the value of
will be $30,000, even though the depreciation expense for tax purposes
Practice during the first year.
Midterm
answer key a. Determine the (pretax) accounting profit for this venture.
b. Determine the (pretax) economic profit for this venture.
c. Which of the costs for this firm are explicit and which are implicit?
UC Irvine
ECON 100B -… Answers:
Practice
a. Accounting profits:
Midterm #1
Revenues $2,000,000
4 pages Less: Salaries 1,500,000
Operating expenses 250,000
Depreciation 5,000
Total 1,775,000
Operating income 245,000
Less: Interest expense 75,000
Accounting profit before tax $170,000
Practice
Questions
b. Economic profits:
Revenues $2,000,000
UC Irvine
Less: Salaries 1,500,000
ECON 100B -… Operating expenses 250,000
LARC Depreciation 20,000
Katherine Graham's foregone income 100,000
Total 1,870,000
Economic profit before financial costs 130,000

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7) Luigi’s
Less: Lasagna
Interest is a price taker. Its costs are
expense 쇳
75,000
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Economic profit before tax $55,000
Output (plates per day) Total Cost (dollars per day

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