If variable costs for producing 1 unit are 4.5 EUR, that for the production we need...
If variable costs for producing 1 unit are 4.5 EUR, that for the production we need to lease a machinery for 3000 EUR per year, if the production exceeds 1000 units we have to pay workers additional 3000 EUR.
We have one demand for 1500 units for a price of 10 EUR per unit. Should we launch the product? how should we do the calculation?
Homework Answers
Total cost = Fixed cost + Variable cost
Total revenue = 1500 * 10 = 15000
Lease payment for machine = 3000
Additional payment to labor = 3000
Total cost for producing 1500 units = variable cost * units + Lease payment for machine + Additional payment to labor
= 1.5*1500 + 3000 + 3000
= 2250 + 3000 + 3000 = 8250
Profit = TR - TC = 15000 - 8250 = 6750
As there is positive profit, product should be launched
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