Marketing Final Exam

Swings quantity 1 2 3 4 5 6 7 marginal revenue 260

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Unformatted text preview: hich quantity should Chesapeake Bay stop producing additional swings? Quantity 1 2 3 4 5 6 7 Marginal Revenue $260 110 190 170 160 150 120 Marginal Cost $160 140 120 140 160 180 220 Total Profit $200 270 340 370 370 340 240 ANS: Marginal revenue is the extra revenue associated with selling an extra unit of output. As long as the revenue of the last unit produced and sold is greater than the cost of the last unit produced and sold, the firm should continue manufacturing. The student should find the point in the schedule where marginal revenue is equal to marginal cost, which is at 5 units. The firm would not stop producing at 4 units, even though the addition of the fifth unit did not add any profits. This is because the firm could not determine an increase or decrease in profits after the fourth unit until an additional unit had been produced. PTS: 1 REF: 311 Communication KEY: CB&E Model Pricing OBJ: 19-5 TOP: AACSB MSC: BLOOMS Synthesis 14. What is a break-even point? The Catera Company makes and sells cotton candy machines. What is the break-even volume for Catera machines in units? Catera Machines Financial Information Salesperson salary Advertising Research and development Production equipment Overhead allocation $ 40,000 100,000 20,000 20,000 20,000 Catera’s selling price Average variable cost $600 $350 ANS: A break-even point is that level of units sold at a certain price at which no profit or loss is incurred. Break-even analysis determines what sales volume must be reached for a product before the company breaks even (total costs are equal to total revenue).Using the break-even formula indicates that Catera must sell 800 cotton candy machines to break even. Fixed cost contribution = Selling price – Average variable cost Fixed cost contribution = $600 – $350 = $250Break-even quantity = Total fixed costs ÷ Fixed cost contribution Break-even quantity = $200,000 ÷ $250 = 800 units PTS: 1 REF: 311-312 Communication KEY: CB&E Model Pricing OBJ: 19-5 TOP: AACSB MSC: BLOOMS Synthesis 15. Name two advantages and two disadvantages associated with the use of break-even analysis. ANS: Advantages of using break-even analysis include that it (1) provides a quick estimate of how much the firm must sell to break even, (2) provides information about how much profit can be earned if a higher sales volume is obtained, and (3) reduces the dependence on marginal cost and revenue data, which are frequently unavailable. Disadvantages of using break-even analysis include that (1) it is difficult to know whether a cost is fixed or variable and (2) failure to account for the concept of demand. For example, a firm may not be able to sell the break-even number of units because demand may be limited to fewer units. PTS: 1 REF: 312-313 Communication KEY: CB&E Model Pricing OBJ: 19-5 TOP: AACSB MSC: BLOOMS Synthesis 16. As a product moves through its life cycle, the demand for the product and the competitive conditions tend to change. For each stage in the product l...
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This document was uploaded on 09/29/2013.

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