Question

Band GoGo Penguin organizes a concert. He faces the following economic situation: the cost function is: TC = €20000. The price of tickets is p = €50.

a) Explain the cost structure and the amount of variable costs. b) Find out at what quantity the break even point occurs and explain it. c) At what quantity is the profit the greatest? Help yourself with the “TC-TR” diagram.

Answer 1

The cost structure of the concert is explained and the break-even point is calculated. However, the quantity at which the profit is greatest cannot be determined without the TC-TR diagram.

Step-by-step explanation:

The cost structure of the band GoGo Penguin's concert can be represented by the total cost (TC) function of €20000. This means that the band incurs a fixed cost of €20000 for organizing the concert. Variable costs, on the other hand, are costs that change with the quantity of output. In this case, the variable costs are not provided, so we cannot determine the amount of variable costs.

The break-even point occurs when the total revenue (TR) equals the total cost (TC). To find this quantity, we divide the total cost by the price of tickets. In this case, the break-even point is €20000/€50 = 400 tickets. At this quantity, the band covers all its costs, but does not make a profit or a loss.

To determine the quantity at which the profit is greatest, we can use the TC-TR diagram. The profit is greatest when the gap between TC and TR is the largest. In this case, we do not have the TC-TR diagram, so we cannot determine the quantity at which the profit is greatest.