Arlington Campus Please write the best answer to the following

two problems and submit your response in Black Board under Week 9

_Assignment III_ by 5:30 PM on Monday June 16, 2014. Please be

organized and show all your work. Best of Luck

Chapter 10

7) Royersford Knitting Mills, Ltd, sells a line of women’s knit

underwear. The firm now sells about 20,000 pairs a year at an

average price of $10 each. Fixed costs amount to $60,000, and a

total varibale costs equal $120,000. The production department has

estimated that a 10 percent increase in output would not affect

fixed costs but would reduce average variable cost by 40 cents. The

marketing department advocates a price reduction of 5 percent to

increase sales, total revenues, and profits. The arc elasticity of

demand with respect to prices is estimated at -2. A) Evaluate the

impact of the proposal to cut prices on (i) total revenue, (ii)

total cost, and (iii) total profits. B) If average variable costs

are assumed to remain constant over a 10 percent increase in

output, evaluate the effects of the proposoed price cut on total

profits.

Chapter 11

4. Unique Creations holds a monopoly position in the production

and sale of magnometers. The cost function facing Unique is

estimated to be TC= $100,000 + 20Q

A) What is the marginal cost for Unique B) if the price

elasticity of demand for Unique is currently -1.5, what price

should Unique charge? C) What is the marginal revenue at the price

computed in Part (b)? D) If a competitor develops a substitute for

the magnometer and the price elasticity increases to -3,0, what

price should Unique charge?

Attachments

Week 9 Assignment 3.docx