#cfa #cfa-level-1 #economics #reading-15-demand-and-supply-analysis-the-firm #section-3-analysis-of-revenue-costs-and-profit
The following revenue and cost information for a future period is presented in Exhibit 20 for WR International, a newly formed corporation that engages in the manufacturing of low-cost, pre-fabricated dwelling units for urban housing markets in emerging economies. (Note that quantity increments are in blocks of 10 for a 250 change in price.) The firm has few competitors in a market setting of imperfect competition.
How many units must WR International sell to initially break even?
Where is the region of profitability?
At what point will the firm maximize profit? At what points are there economic losses?
| Quantity (Q) | Price (P) | Total Revenue (TR) | Total Costs (TC)a | Profit |
|---|---|---|---|---|
| 0 | 10,000 | 0 | 100,000 | (100,000) |
| 10 | 9,750 | 97,500 | 170,000 | (72,500) |
| 20 | 9,500 | 190,000 | 240,000 | (50,000) |
| 30 | 9,250 | 277,500 | 300,000 | (22,500) |
| 40 | 9,000 | 360,000 | 360,000 | 0 |
| 50 | 8,750 | 437,500 | 420,000 | 17,500 |
| 60 | 8,500 | 510,000 | 480,000 | 30,000 |
| 70 | 8,250 | 577,500 | 550,000 | 27,500 |
| 80 | 8,000 | 640,000 | 640,000 | 0 |
| 90 | 7,750 | 697,500 | 710,000 | (12,500) |
| 100 | 7,500 | 750,000 | 800,000 | (50,000) |
a Includes all opportunity costs
WR International will initially break even at 40 units of production, where TR and TC equal 360,000.
The region of profitability will range from 40 to 80 units. Any production quantity of less than 40 units and any quantity greater than 80 will result in an economic loss.
Maximum profit of 30,000 will occur at 60 units. Lower profit will occur at any output level that is higher or lower than 60 units. From zero quantity to 40 units and for quantities beyond 80 units, economic losses occur.