Question

Answer the following questions:

Q1) Fred Jones sells high powered bubble guns at local flea markets.  The variable cost to make these is $5.00 each, and he sells them for $10.00.  The cost to rent a booth at the flea market is $75.00. 
a) How many of these must Fred sell to break even
b) However Fred is considering raising the price to $15.00. He currently sells 30 high powered bubble guns, but if he raises the price, sales will decrease to 24. Should he raise the price?
c) If Fred raises the price to $15.00, he will try to find a new supplier that will reduce his variable cost of production to $3.00 per unit. If he was able to succeed in reducing this cost, what would the break even be?
Show all variables and all work.  Format and take to two decimals.

Q2) You and your friend have decided to go into business manufacturing suitcases.  You know fixed costs will be $120,000.00 a year, and you expect variable costs to be $45.00 per bag. 
a) If you plan to sell the bags to a local retail store in your hometown for $55.00, how many must you sell to breakeven? 
b) You and your friend want to increase the price of the bag to $60.00, so you and your friend believe that if you do a marketing plan (annual cost of $3,000.00) you can sell more bags.   They currently sell 15,000 bags per year and estimate that with marketing the number that they sell should increase to 20,000. Should you and your friend raise the price?
c) If you raise the price and do a marketing plan, how many must you sell to breakeven? 
Show all variables and all work.  Format and take to two decimals.

Q3) The Retread Tire Company recaps tires.  The  fixed annual cost of the recapping operation is $60,000.00.  The variable cost of recapping a tire is $9.00.  The company charges $25.00 to recap a tire. 
a) For an annual volume of 12,000 tires, determine total cost, total revenue, and profit. 
b) Determine the annual breakeven volume for Retread Tire company. 
c) Retread Tire Company believes they can get more business if they lower the amount they charge to recap a tire to $23.00. Should they make this decision??
Show all variables and all work.  Format and take to two decimals.

Q4) Using the following payoff table, use the Decision Making Under Risk Techniques and the following probabilities to determine which of the following investments the local real estate invester should invest in, using the following probabilities: p = 0.30 for a Shortage, p = 0.50 for a Stable Supply, and p = 0.20 for a Surplus.

Calculate the EMV, EOL, and EV w/PI.

If the investor looking at spending $5,000 to do market research. Is the market research worth the cost??? Why??

Expected Monetary Value
                                  STATES OF NATURE
Investment:               Shortage:       Stable Supply:       Surplus:       EMV

Hobby Shop                $8000                $15000                $20000       ????
Restaurant                  $2000                $8000                  $6000          ????
Gas Station                $6000                $6000                  $5000          ????
Probability                   ????                  ????                      ????            ????

Calculate the Expected Value of Perfect information.

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