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You are working as a Procurement Manager for a Fortune 500 company and are in charge of buying a new make and model of work computers for the entire company headquarters. You know it will be an expensive purchase, but have many options to choose from so you can make the computer manufacturers bid against each other to get the best price

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A computer company must exceed total production costs with sales revenue to make a profit. The price per computer, considering both fixed and marginal costs, determines profitability. Graphs illustrating AC, MC, and AVC curves demonstrate the cost-profit relationship visually.

Step-by-step explanation:

Profit Analysis of Computer Sales

When a computer company sets its pricing structure, it must consider both fixed and variable costs to determine if it can make a profit at a certain sales price. For instance, with fixed costs of $250 and varying marginal costs for the production of each subsequent computer, the company must find a price that exceeds these costs to achieve profit. If computers are sold for $500 each, one must calculate the total costs and compare them with the total revenue to determine profitability.

The cost of using a computer is a mix of operational costs and usage time. By comparing these costs with potential sales prices and volume, the company can determine if it's making a profit or a loss. For example, if the sum of the fixed costs and the total marginal costs for a production run is less than the revenue from sales at $500 per computer, the company makes a profit; otherwise, it incurs a loss.

In analyzing the cost structure, a graph with Average Cost (AC), Marginal Cost (MC), and Average Variable Cost (AVC) curves helps to visually demonstrate the relationship between production volume, costs, and potential profits or losses.

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