Running head: Questions for Critical Thinking 4
Questions for Critical Thinking 4
Robert Rivers
BUSI 620
Liberty University
11 Nov 2013
Salvatore’s Chapter 8 :
Discussion Questions
2.
a.The distinct difference in the two cost stems from the reason the additional cost occurs.
Incremental cost occurs from the production of one unit while marginal costs stem from a
particular decision.
b.Sunk cost is associated with past activities that are set to be paid in the future. This
payment stems from a mutual contract or past agreement.
10.
a. Cost-volume-profit analysis allows managers the capability to answer logical questions
that are present business analysis. This analysis is based on statistical data thus decisions
can be broken into probabilities aiding the decision making process. This analysis is
useful however restricted with regards to the information available within a multi-product
operation.
b. Operating leverage is calculated as the proportion of fixed costs of total cost. There are
vast benefits in operating leverage. High operating leverage can mean more money in
extra sales when they don’t increase production costs. Fixed assets, to include workers
can do more without adding costs and the result from all of this is an increase in profit
margin and earnings. High operating leverage means high breakeven point and low
operating leverage means low breakeven point. Once you hit the breakeven point in high
operating leverage the profits rise fast. On the other hand being under the break even
point can be disasterious with no resolution for fixed costs. For low operating leverage
the reverse effect takes place.
Problems
3.TC = overnight charge + operating cost + fixed cost
=1,200 + 11,000(2) + 3,000
= $26,200
TR = 80 x 200 + 50 x 200
= $26,000
Total profit = TR – TC
= -$200
TC = 11,000(2) + 3,000
= $25,000
TR = 70 x 200 + 50 x 200
= 14,000 + 10,000
= 24,000
Total profit = TR – TC
= 24,000 – 25,000
= -$1,000
Based on the information the airline should continue to use the night flight instead of the
morning flight. The loses are less for the night flight than the morning.
Because the average variable cost is lest than the average revenue it is still beneficial to keep the
business running.
11.
TFC = 100,000
AVC = 20
P = 30
(TR)
(TC)
TR – TC = 0
TR
Spreadsheet Problems
Quantity of Total Variable Total AFCAVCATCMC
Output Costs Costs
0030
1 20 50 30 20 50 20
2 30 60 15 15 30 10
3 48 78 10 16 26 18
4 90 120 7.5 22.5 30 42
5 170 200 6 34 40 80
Salvatore’s Chapter 9:
Problems
7.
P = 3 + 3(0.33)
= 3 + 0.99
= $3.99
The difference between the demand and supply is 200 units.
11.
The conflict that exist between authors and publishers concerns who owns rights. The author
creates the book and a book has to have content to sell so they believe they own it. The
publishers must get the book to the market and feel that without there help the book would not
sell.
Spreadsheet Problems
1. P = $30
= 30(3,250) – 0.005(3,250)2 + 3,250 = $47,937.5
Froeb et al.’s Chapter 9:
9-3
9-4
In the short run, a monopolist should have higher economic profits. In the long run, both
should be expected to have zero economic profit. The monopolist will take longer to reach the
long run.
Froeb et al.’s Chapter 11:
11-4
A dollar devaluation will increase the demand for US goods and services from Mexican
consumers, raising the US price and quantity. This will benefit US producers, but hurt US
consumers. A dollar devaluation will also reduce demand for Mexican goods and services,
reducing the Mexican price and reducing quantity. This will hurt Mexican producers in Juarez,
but benefit Mexican consumers
11-5
