Question

Question

A sportswear manufacturer is introducing a new line of sneakers. To introduce the new line, the company must pay out a
fixed cost of $1.5 million for advertising and equipment, plus there is a cost of 40 cents per pair of sneakers manufactured.
It plans to sell the sneakers for $75 per pair.
Let x be the number of pairs of sneakers manufactured. If the firm only manages to sell 15,000 sneakers, what is the total
loss?

Answer 1

$381,000 loss

Explanation:

Profit is the difference between revenue and cost. Cost is the sum of fixed cost and variable cost. Revenue is the product of selling price and quantity sold.

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If we assume the company only manufactures as many sneakers as it sells, then the profit can be found from ...

R(x) = 75x . . . . . revenue from selling x sneakers

C(x) = 1,500,000 +0.40x . . . . . . cost to manufacture x sneakers

P(x) = R(x) -C(x) . . . . . profit from making and selling x sneakers

P(x) = 75x -(1,500,000 +0.40x)

P(x) = 74.60x -1,500,000 . . . . . profit from x sneakers

P(15000) = 74.60·15,000 -1,500,000 = 1,119,000 -1,500,000

P(15000) = -381,000

The total loss from making and selling 15,000 sneakers is $381,000.