Quiz02-key

# Quiz02-key - ISE 211 Engineering Economy Fall 2006 QUIZ 2...

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ISE 211 Engineering Economy Fall 2006 – QUIZ # 2 Name: ___________KEY___________________ Problem # 1: Kal Tech Engineering Inc manufactures video games for "The Play Station". Variable costs are estimated to be \$20 per unit and fixed costs are \$10,875. The demand-price relationship for this product is Q = 1,000 - (4 × P) where P is the unit sales price of the game and Q is the demand in number of units. (a) Find the breakeven quantity (or quantities). (b) What is the company's maximum possible revenue? (c) What profit would the company obtain by maximizing its total revenue? (d) What is the company's maximum possible profit? Unit variable cost, C v = \$20. Fixed cost, C f = \$10,875. Since, Q = 1,000 - (4 × P), the unit selling price, P = 250 - (0.25 x Q) Total Revenue, TR (Q) = P × Q = {250 - (0.25 × Q)} × Q = {(250 × Q) - (0.25 × Q 2) }. Total Cost, TC (Q) = 20 × Q + 10,875. Profit, PI (Q) = TR (Q) - TC (Q) = [{(250 × Q) - (0.25 × Q 2 )} - {(20 × Q) + 10,875)}] = - 0.25 Q 2 + 230 Q - 10,875. Part (a): To find the breakeven quantities(s), set PI (Q) = 0. (0.25 × Q 2 ) + (230 × Q) - 10,875 = 0. Solving this equation yields the breakeven quantities: Q BE1 = 50 units and Q BE2 = 870 units.

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## This note was uploaded on 04/16/2008 for the course ISE 211 taught by Professor Mohammad during the Spring '08 term at Binghamton.

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Quiz02-key - ISE 211 Engineering Economy Fall 2006 QUIZ 2...

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