Assignment 2

MSC301

Redwan Afrid Avin

ID: 19104022
Section: 1
Ans: 1
i.)Find the total cost function for alternatives A and B, and the revenue function
Ans:
Total Cost = Fixed cost + Variable cost

Alternative A

T.C = 40000 + (10*Q) = 40000 + 10Q

Alternative B

T.C = 30000 + (15*Q) = 30000 + 15Q

Total Revenue = Revenue * Quantity

Alternative A

T.R = 20*Q = 20Q

Alternative B T.R = 20*Q = 20Q

iii) Find the break-even point for the alternatives A and B and show it in the figure
Ans:
Break-even point

Alternative A ⇒ 40000/(20-10) = 4000

Alternative B ⇒ 3000/(20-15) = 6000

iv)At what volume of output would the two alternatives yield the same profit? Show it
in the figure.
Ans:
Profit A ⇒ P(20-10) - 40000 = P10 - 40000
Profit B ⇒ P(20-15) - 30000 = P5 -30000
P10 - 40000 = P5 -30000
⇒ P10 - P5 = 40000 - 30000
⇒ P5 = 10000
⇒ P = 10000/5
⇒ P = 2000
Ans: 2
For Machine 1,
Total cost = 12,000 + ( 400 X 30 ) = $ 24,000
Sales revenue = 400 X 60 = $ 24,000
Profit/loss = $ 24,000 - $ 24,000 = 0
=0

For Machine 1 & 2,

Total cost = 12,000 + 16,500 + ( 400 X 30 ) + ( 250 X 30 )= $ 48,000
Sales revenue = 650 X 60 = $ 39,000
loss = $ 39,000 - $ 48,000 = ( $ 9,000 )
= ( $ 9,000 )

For Machine 1, 2 and 3,

Total cost = 12,000 + 16,500 + 21,000( 400 X 30 ) + ( 250 X 30 ) + ( 250 X 30 )= $ 76,500
Sales revenue = 850 X 60 = $ 51,000
loss = $ 51,000 - $ 76,500 = ( $ 25,500 )
= ( $ 25,500 )

So, 1 machine should be purchased as it brakes even and purchasing 2 or 3 machines results in
loss for the business