A friend is asking you for advice about an opportunity he found
compelling – he wants to sell a certain gadget during the upcoming
holiday season. To that end, he identified a busy mall where he can
set up a small display for $10,000 for the holiday season. He plans
on acquiring the gadget wholesale at $10 each and, after doing some
market research into comparable items, thinks he’ll be able to sell
each for $20. In order to be able to staff his own display, he
decided that the best way would be to take some time off from his
hourly- paid job. In past holiday seasons your friend made on
average $6,000 taking into account wages, commissions and tips. In
order to best advise your friend, answer the following questions:
a. What is the cost equation for your friend’s operation?
b. What are the Marginal, Average Variable, Average Fixed, and
Average Total Costs?
c. If your friend is right about the price consumers would pay
for the product, how many units does he need to sell to see a
d. What is the Average Fixed Cost for the number of units you
determined in c.?
What is the meaning of such value?
Please typewrite your answers, no handwritten answers