Question

A company produces 10 items, charges $45 per item. When it produces 20 items, it charges $40 per item. Cost to produce 10 items is $450, cost to produce 20 items is $650. What is the price, cost, revenue, profit functions. What is the break-even points, max profit and items to produce to get max profit.

Answer 1

a. The price, cost, revenue, profit function = Revenue - Cost = (price * quantity - cost)

b. Break-even point = Total Revenue = Total Cost

= $450 = $450

break-even point in units = 10 items

c. Maximum profit = $150

Items to produce to get max profit = 20 items

Step-by-step explanation:

a) Data and Calculations:

Sales Revenue for 10 items = $450 ($45 * 10)

Cost of sales for 10 items = $450

Sales Revenue for 20 items = $800 ($40 * 20)

Cost of sales for 20 items = $650

The price, cost, revenue, profit function = Revenue - Cost = (price * quantity - cost)

For 10 items, function yields = {($45 * 10) - $450} = 0

For 20 items, function yields = {($40 * 20) - $650} = $150