Solution and Explanation:
1. MC = Cost of raw materials + Labor cost
MC = 5 plus (10 divide by 2)
MC = $10
2. TFC = $300
Q = 300, AFC = TFC/Q = 300 divide by 300 = $1
3. Nicholas's optimum output is likely to be greater
Rationale: P = MR = $15, MC = $10
With MR exceeding MC, increasing output is advisable until MR equals MC to maximize profits.
4. His profit-maximizing output would likely increase
Reason: P = MR = $15, MC = $4 + $5 = $9
Since MR > MC, Nicholas should amplify his output until they are equated at the profit-maximizing point.
The company should opt for system A, as it boasts a six-year lifespan and lower annual operating expenses.
Rationale:
- Despite system A's price of $438,000, it is of good quality and lasts for six years. Thus, its quality is quite sufficient. It incurs an $83,000 tax operating cost annually.
- Conversely, system B has a lower cost of $369,000, but its $92,000 tax operating cost per year is higher than that of system A.
- System A outlasts system B, making it the preferable choice for the firm.
The answer involves understanding the consumer's needs, along with aspects of advertising, promotion, and pricing.
A purchasing department may face challenges acquiring a product promptly if it is not immediately available, resulting in delays. Additionally, obtaining a product at an acceptable cost can be problematic, requiring the purchaser to seek alternatives, which can also consume extra time.
