# Chap 8 - Chapter 8 Solutions Problem 8.5 a The initial or...

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Chapter 8 Solutions

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Problem 8.5 a The initial, or before-price reduction, copy volume can be calculated using the profit contribution formula. Profit contribution = (P - AVC)Q 1 \$600 = (\$0.05 - \$0.02)Q 1 Q = 20,000 After the price reduction, a profit contribution of \$800 (=1.33 × 600) requires an output level of 40,000 units since: Profit Contribution = (P - AVC)Q 2 \$800 = (\$0.04 - \$0.02)Q 2 Q 2 = 40,000 Therefore, Pickles' projected increase in volume is: Projected increase = Q 2 - Q 1 = 40,000 - 20,000 = 20,000 copies per week
Problem 8.5 b (Elastic) 3 - = 20,000 + 40,000 \$0.05 + \$0.04 \$0.05 - \$0.04 20,000 - 40,000 = Q + Q P + P P - P Q - Q = E 1 2 1 2 1 2 1 2 P × × Use arc elasticity:

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Problem 8.6 a Applying the breakeven formula, the breakeven sales volume is 12,500 units, calculated as . units 12,500 = \$8 \$100,000 = Q
Problem 8.6 b A To find the number of copies one must sell to earn a \$20,000 profit, simply add the \$20,000 profit requirement to the book's fixed costs, and then divide this total amount by the profit contribution per unit. The sales volume required in this case is 15,000 books, found as: . units 15,000 = \$8 \$20,000 + \$100,000 = on Contributi Profit t Requiremen Profit + Costs Fixed = Q

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Problem 8.6 c
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