Question

One of the activities of Urban Renewal Co. is to refurbish antique trolley cars for transit authorities in several cities. Based on an estimated production volume of 37 cars per year, the standard fixed costs have been established as $ 3500 per car at that production volume and the variable costs per car as $7200 per car. To avoid cash loss, what is the smallest average price the company can afford to charge for refurbishing a car?Question 2b- One of the activities of Urban Renewal Co. is to refurbish antique trolley cars for transit authorities in several cities. Same data as part a above. B. Because the competition varies from city to city and it is difficult for one transit authority to learn what another transit authority pays, the company varies its prices from city to city. What is the smallest price per car that the company should charge any transit authority and still meet competition?Question 2c One of the activities of Urban Renewal Co. is to refurbish antique trolley cars for transit authorities in several cities. Same data as in a above - C. Assuming a volume of R cars per year is possible without requiring any new assets or infrastructure, what is the smallest average price the company can charge if it anticipates an actual volume of R cars per year?

Answer 1

(A) $7,294.595 approximately $7,295

(B) In this case we are dealing with competition for refurbished cars across cities, not avoidance of cash loss hence the answer is the function:

(PC1 + PC2 + PC3 + ... + PCn) ÷ n

(C) The smallest average price is $7,200

Step-by-step explanation:

(A) The smallest average price that the company can afford to charge for refurbishing 1 car is the price at which Total Revenue equals Total Cost

TR = TC

TR = price × quantity

TC = TFC + TVC

TR = 37P

TC = $3,500 + (VC × Q)

where total variable cost is equal to variable cost multiplied by the quantity of cars

TC = $3,500 + ($7,200 × 37)

TC = $3,500 + $266,400 = $269,900

Equating Total Revenue to Total Cost,

37P = $269,900

P = $7,294.595 approximately $7,295

(B) Since the specific prices at which the cara are sold across the various cities are not given, our solution will be a function which is equal to the average of the prices across cities.

(PC1 + PC2 + PC3 +...+ PCn) ÷ n

where n = the number of cities where the company's refurbished cars are sold

PC1 = the price at which the cars are sold in the first city or in City labelled "1"

And so on and so forth

(C) In this case, total cost is equal to total variable cost since no new fixed cost is incurred (since no new assets or infrastructure are required or acquired).

Once again, the smallest average price the company can or should charge is the price at which total revenue equals total cost.

Here,

TR = PR

Where P is the price we are looking for and R is the quantity/volume of cars in the new year.

TC = TVC = $7,200R

Equating TR to TC, we have

PR = $7,200R

Divide both sides by R to get the desired variable P

P = $7,200

Answer 2

Total fixed cost (FC) = 37 x $3,500 = $129,500

If required minimum price be P, then in order to break-even (zero loss),

FC + (Unit variable cost x Number of cars) = Price x Number of cars

$129,500 + ($7,200 x 37) = P x 37

$129,500 + $266,400 = P x 37

P x 37 = $395,900

P = $10,700

Step-by-step explanation: