two firms in the same industry sell their product at 20$ per unit but one firm...
Homework Answers
A.
Break even output for first firm = FC/(selling price - avc) = 200/(20-12)
Break even output for first firm = 25 units
Break even output for second firm = 600/(20-6.66)
Break even output for second firm = 44.98 or 45 units
Break even output for the second firm is larger than that of first firm, because second firm is having bigger fixed cost. Hence, second firm has to sell higher volume of products to recover the fixed cost.
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B.
When profit for the first firm is $1200,
1200 = Contribution margin*25 + 200
Contribution margin = 1000/25
Contribution margin = $40
When profit for the second firm is $1400,
1400 = Contribution margin*45 + 600
Contribution margin = (1400-600)/45
Contribution margin = $17.78
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