Question

Cost and Demand 1 You are the manager of a Midwestern tractor factory planning to produce one of two new products, a zero-turn riding lawn mower or a compact tractor. You learned in college that setting the right price for your new product will assist you in maximizing profits while maintaining a good relationship with your customers. You expect the demand for the mower to be 100,000 units and the demand for the tractor to be 2,000 units. The annual cost of carrying these products in inventory is $50 for a mower and $100 for a tractor. 10 points Print References @tanger/Shutterstock A B с D E 1 Product Average Variable Cost Quantity Total Fixed Cost 2 Total Cost $ $ 0 3 0 Mower Tractor Product Mower 4 Total Cost Quantity Average Total Cost NaN 5 NaN Average Total Cost Mark Up Price 0.00 $ 0.00 Price Average Total Cost Profit 6 Tractor 7 Product 8 Mower 9 Tractor 10 Product 11 Mower 12 Tractor 13 Product 14 Mower 15 Tractor 0.00 0.00 $ Total Revenue Price Quantity $ 0.00 0.00 $

You estimate that the average variable cost (AVC) will be $100 for the mower and $1,000 for the tractor. The total fixed cost (TFC) will be $50,000 for the mower and $100,000 for the tractor. What is the total cost of the mowers for each order?

• $17,000,000

• $2,100,000

• $10,050,000

• $1,900,000

What is the total cost of the tractors for each order?

• $600,000

• $5,200,000

• $2,100,000

• $4,100,00

2. What is the average total cost of the mowers?

• $190.28

• $210.75

• $100.50

• $140.10

What is the average total cost of the tractors?

• $1,800

• $1,200

• $2,000

• $1,050

3. You consult with your colleagues, and you all agree that effective pricing can assist you in avoiding the serious financial problems that may occur if prices are too high or too low. If the price is high, you may price yourselves out of the market. If the price is low, you may be underpaid for your work. Consequently, you decide to employ a 30 percent markup. What is the new price of the mower?

• $195.50

• $230.20

• $95.15

• $130.65

What is the new price of the tractor?

• $1,365

• $2,050

• $2,300

• $1,000

4. What are the profits for the mower under this scenario?

• $30.15

• $50.20

• $60.10

• $25.50

What are the profits for the tractor?

• $255

• $520

• $610

• $315

5. What are the total revenues for the mowers for each order?

• $13,065,000

• $11,055,000

• $12,400,000

• $12,110,000

What are the total revenues for the tractors for each order?

• $2,410,000

• $2,529,000

• $2,493,000

• $2,730,000

Answer 1

Q1 total cost of the mowers for each order = 10,050,000

Q1 total cost of the tractors for each order = 2,100,000

Product	Average Variable Cost	Quantity	Total fixed cost	Total cost
Mower	100	100,000	50,000	10,050,000
Tractor	1,000	2,000	100,000	2,100,000

Q2 average total cost of the mowers = 100.50

Q2 average total cost of the tractors = 1,050.00

Product	Total cost	Quantity	Average total cost
Mower	10,050,000	100000	100.50
Tractor	2,100,000	2000	1,050.00

Q3 the new price of the mower = 130.65

Q3 the new price of the tractor = 1,365.00

Product	Average total cost	Markup	Price
Mower	100.50	30.15	130.65
Tractor	1,050.00	315.00	1,365.00

Q4 profits for the mower under this scenario = 30.15

Q4 profits for the tractor under this scenario = 315

Q5 total revenues for the mowers for each order = 13,065,000

Q5 total revenues for the tractors for each order = 2,730,000

Product	Price	Quantity	Total Revenues
Mower	130.65	100000	13,065,000.00
Tractor	1,365.00	2000	2,730,000.00