Module 4 – QCT 4
BUSI620: Module 4 – QCT 4
Katrina Deloach
Liberty University
Dr. Kimberly Johnson
July 12, 2014
1
Module 4 – QCT 43
First step is to calculate total cost (TC) as per formula 8-11 of Salvatore (2012), which is
TC=TFC+TVC.
TC =3000+1000+12000
= $15,200
Next step is to calculate revenue for each the flights, which is quantity (Q) times price (P).
Q= 80, 50, 70, P=$200
Revenue = 80*200=50*200=70*200
=$16,000= $10,000= $14,000
Next step is to calculate profit for the evening Los Angeles to NY flight, the afternoon flight from
NY to Los Angeles, and the morning flight from Los Angeles to NY, the formula is revenue minus
total cost.
Profit = 16000-15200=10000-15,200=14000-15,200
= $800 dollars= - 5,200= -1,200
Last but not least, should the airline replace its night flight from Los Angeles with a morning
flight? Should the airline remain in business? Based on the above information, and the profit
differences between these two flights of 5200-1200 = -$4,000, the airline should replace the flights
to decrease their profit loss so that they may remain in business and be profitable.
Problem 11 (The Goldberg-Scheinman Publishing Company)
Determine the breakeven output and total sales revenues and draw the cost-volume-profit
chart. Cost-volume-profit or breakeven analysis formula 8-17, which, according to Salvatore
(2012) is QB=TFC/P-AVC will be used to solve this problem.
QB = $100,000/$30-$20
= 100,000/10
= 10,000
Module 4 – QCT 44
Determine the output that would generate a total profit of $60,000 and total sales
revenues at that output level; draw the cost-volume-profit chart. The output that is necessary to
generate $60,000 in profits is calculated as follows:
Output = $100,000+$60,000/30-20
= 160,000/10
= 16,000
Based on this information, total sales revenues for this problem is 16,000*$30 = $480,000
Salvatore's chapter 8 spreadsheet problem 1 (p.357) (pasted from Excel spreadsheet)
Calculate AFC, AVC, ATC, and MC.
Salvatore’s Chapter 9
Problem 7
From figure 9-4, determine the effect of a 33 percent import tariff on commodity X.
Based on the information in figure 9-4, $5 is the equilibrium with only domestic producers, $3 is
free world trade, and $3(1+.33) =$4 is tariff-inclusive price. That being said, at a price of $3
domestic suppliers will want to sell and produce 200 units with 400 imported for a total of 600. At
the price of $4 domestic suppliers would want to sell and produce 300 units with 200 imported for a
total of 500. The effect of a 33 percent import tariff on commodity X would increase domestic
production but decrease imports of commodity X.
Problem 11
Quantity Total
of Variable Total
Output Costs Costs AFC
0$ -$ 30 NA
1$ 20$ 50$ 30
2$ 30$ 60$ 15
3$ 48$ 78$ 10
4$ 90$ 120$ 8
5$ 170$ 200$ 6
Note: Total Fixed Cost = $30
AVC
NA
$ 20 $
30 $ 48
$ 90 $
170
ATC
NA
$ 50 $
60 $ 78
$ 120 $
200
MC
NA
$ 20 $
10 $
18 $
42 $
80
Module 4 – QCT 45
Most book publishers pay authors a percentage of the revenue from book sales. Explain
the conflict that this creates between publishers and authors. Through research, the writer has
learned that there are varying views on this topic. In a 2009 article by Bob Miller, President and
Publisher of HarperStudio states he does not believe that authors should be paid higher royalties in
exchange for marketing ideas. Mr. Miller asks, “shouldn’t author and publisher alike be doing
everything possible to make a book succeed, without needing to count up who has gone beyond the
call of duty?” (Miller, 2009, Para. 3) while being “equal partners, sharing profits fifty-fifty” (Para.
5). Miller goes on to explain that, basically, the relationship between publishers and authors need to
be rethought. In interpreting this, the writer believes that there is a certain level of conflict that
could exist between a publisher and a writer in terms of profit sharing. Everyone wants to be sure
that they are receiving the highest possible profit for their work and efforts.
From more of an economic perspective, the writer learned about The Plant Horvitz Model
which signifies that there is “no conflict of interest between authors and publishers over book prices
as long as the royalty percentage is negotiable” (Layson, 1982, p. 1). By this model, P = book
price, Q = book production, a = royalty % per book, C(Q) = production costs, and T = total royalty
payments. From this formula, the profits for publishers can be determined as follows:
PQ – T –C(Q) = (1 – a) PQ – C(Q) (Layson, 1982, p. 1).
Salvatore's chapter 9 spreadsheet problem 1 (p.406) – (pasted from Excel spreadsheet)
(1a) The market demand function is QD=4,750-50P and P is expressed in dollars, use
Excel to calculate what the equilibrium price is by calculating values of QD and QS for P from 25
to 50 in 1’s. (1d) For (a) only, if TC = 0.005Q2 –Q, what is the profit in each case?
P
2
5
2
6
2
7
2
8
2
9
3
0
QS
325
0
325
0
325
0
325
0
325
0
325
0
QD
350
0
345
0
340
0
335
0
330
0
325
0
Profit=TR-TC
31687.5
34937.5
38187.5
41437.5
44687.5
47937.5
51187.5
Note: Calculate the profit at
the equilibrium
Module 4 – QCT 4 6
Froeb et al.’s Chapter 9
Individual problem 9-3 (Snacks, Beer, and Marijuana)
When California voted on legalizing marijuana, which side would you think California
beer distributors were on? What about snack food venders? Why? California beer distributors
were against the legalization of marijuana in California. The beer distributors were the first
competitors of marijuana to enter the debate (Grim, 2010, p.1). There is an association that
smoking marijuana leads to snacking and based on this assumption, the writer believes that snack
food venders were more than likely supportive of the legalization of marijuana because it would
significantly increase profits on snacks. The more marijuana people smoke, the more snacks they
more than likely would buy. While the beer industry was opposed to California legalizing
marijuana, the snack food venders on the other hand supported Proposition 19. “Ultimately, the
ripple effect of legalization in California is almost immeasurable, and could work its way across
vast segments of the economy” (Watson, 2010, p. 1). Marijuana and snack foods are strong
compliments of each other and are the reason why the writer believes the snack food industry more
so supported the legalization of marijuana.
3
2
3
3
3
4
3
5
3
6
3
7
3
8
3
9
4
0
4
1
4
2
4
3
4
4
4
5
4
6
4
7
4
8
4
9
5
0
325
0
325
0
325
0
325
0
325
0
325
0
325
0
325
0
325
0
325
0
325
0
325
0
325
0
325
0
325
0
325
0
325
0
325
0
325
0
315
0
310
0
305
0
300
0
295
0
290
0
285
0
280
0
275
0
270
0
265
0
260
0
255
0
250
0
245
0
240
0
235
0
230
0
225
0
54437.5
57687.5
60937.5
64187.5
67437.5
70687.5
73937.5
77187.5
80437.5
83687.5
86937.5
90187.5
93437.5
96687.5
99937.5
103187.
5
106437.
5
109687.
5
112937.
5
Froeb et al.’s Chapter 11
Individual problem 11-4 (The Carry Trade)
How does a decrease in U.S. interest rates affect the EU/U.S. exchange rate? A decrease in the
U.S. interest rates affect the EU/U.S. exchange rate “would affect a foreign borrower or a foreign
investor. A foreign borrower would increase borrowing in dollars in response to the lower U.S.
interest rate” (Froeb et al., 2014, p. 128). The borrower would take the monies borrowed from the
U.S. to buy EU which is known as the “carry trade.” The carry trade would significantly impact the
decrease of U.S. interest rates on the Euro dollar.
Individual problem 11-5 (Dollar Devaluation)
How will a dollar devaluation affect businesses and consumers in the twin cities of El
Paso, United States, and Juarez, Mexico? “Currency devaluations help producers because they
make exports less expensive, but they hurt consumers because they make imports more expensive”
(Froeb, et al., 2014, p. 129). That being said, dollar devaluation would mean that it would be easier
Module 4 – QCT 47
Individual problem 9-4 (Competitive Industries)
Are managers in more competitive industries more likely to spend their time on reducing
costs or on pricing strategies? According to Froeb et al. (2014), competitive industries are where,
“firms produce a product or service with very close substitutes so that they have very elastic
demand, firms have many rivals and no cost advantages, and the industry has no barriers to entry or
exit” (p. 104). This implies very elastic demand and, therefore, not much autonomy for anything
other than standardized pricing. On-the-other-hand, being a higher cost firm in a competitive
industry means that you lose more of your business to competitors. Therefore, managers are more
likely to spend their time reducing costs versus on pricing strategies.
Module 4 – QCT 48
for El Paso and twin cities to export products while making it also easier for Mexico to import their
products.
Module 4 – QCT 49
References
Froeb, L., McCann, B., Shor, M., & Ward, M. (2014). Managerial economics: a problem solving
approach (3rd ed.). Australia: South-Western Cengage Learning.
Grim, R. (2010, September 21). California Pot Initiative Opposed By Beer Industry. The
Huffington Post. Retrieved July 16, 2014, from
http://www.huffingtonpost.com/2010/09/21/this-buds-not-for-you-bee_n_732901.html
Keith, L. (n.d.). Understanding Sunk Costs Leads to Better Decision Making. All Business.
Retrieved July 15, 2014, from http://www.allbusiness.com/science-technology/earth
atmospheric-science-meteorology/12602574-1.html
Layson, S. K. (1982). Is there a conflict between authors and publishers over book prices?
Southern Economic Journal (Pre-1986), 48(4), 1057. Retrieved from
http://search.proquest.com/docview/217153106?accountid=12085
Miller, R. (2009, August 31). Re-thinking the Publisher/Author Partnership : Publishing
Perspectives. Publishing Perspectives. Retrieved July 19, 2014, from
http://publishingperspectives.com/2009/08/re-thinking-the-publisherauthor-partnership/
Salvatore, D. (2012). Managerial economics in a global economy (7th ed.). Oxford: Oxford
University Press.
Watson, B. (2010, April 22). Pot Economics: Who Stands to Profit if Marijuana Is Legalized? -
DailyFinance. DailyFinance.com. Retrieved July 16, 2014, from
http://www.dailyfinance.com/2010/04/20/pot-economics-who-stands-to-profit-if
marijuana-is-legalized/
