2. Superior Metals Company has seen its sales volume decline over the last few years as the result offising foreign imports. In order to increase sales and hopefully, profits), the firm is considering a pricereduction on uranium-a metal that it produces and sells. The firm currently sells 60.000 pounds ofuranium a year at an average price of $10 per pound. Fixed costs of producing uranium are $250,000.Current variable costs per pound are $5. The firm has determined that the variable cost per poundcould be reduced by $.50 if production volume could be increased by 10 percent (fixed costs wouldremain constant). The firm' marketing department has estimated the arc elasticity of demand foruranium to be - 1.5.(a) How much would Superior Metals have to reduce the price of uranium in order to achieve a 10percent increase in the quantity sold?(b) What would the firm's (i) total revenue, (ii) total cost, and (ii) total profit be before and after theprice cut?8 - 60000

Elasticity(e) of demand is the percentage change in the quantity demanded(Qd) due to a 1% change in…

(a) How much would Superior Metals have to reduce the price of uranium in order to achieve a 10 percent increase in the quantity sold? (b) What would the firm's (i) total revenue, (ii) total cost, and (iii total profit be before and after the price cut? P> 10

(a) How much would Superior Metals have to reduce the price of uranium in order to achieve a 10 percent increase in the quantity sold? (b) What would the firm's (i) total revenue, (ii) total cost, and (iii total profit be before and after the price cut? P> 10

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 7MC

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Question

2. Superior Metals Company has seen its sales volume decline over the last few years as the result of
fising foreign imports. In order to increase sales and hopefully, profits), the firm is considering a price
reduction on uranium-a metal that it produces and sells. The firm currently sells 60.000 pounds of
uranium a year at an average price of $10 per pound. Fixed costs of producing uranium are $250,000.
Current variable costs per pound are $5. The firm has determined that the variable cost per pound
could be reduced by $.50 if production volume could be increased by 10 percent (fixed costs would
remain constant). The firm' marketing department has estimated the arc elasticity of demand for
uranium to be - 1.5.
(a) How much would Superior Metals have to reduce the price of uranium in order to achieve a 10
percent increase in the quantity sold?
(b) What would the firm's (i) total revenue, (ii) total cost, and (ii) total profit be before and after the
price cut?
8 - 60000

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