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# Answer to Question #56428 in Microeconomics for afy

Question #56428
Ben Laden Rugs, Inc., sells hand-made cotton rugs to tourists at a price of $50. Of this amount,$40 is profit contribution. Ben Laden is considering an attempt to differentiate his product from several other competitors by using high quality natural herb dyes. Doing so would increase Ben Ladenâ€™s unit cost by $15 per rug. Current annual profits are$35,000 on 1,000 rug sales.
A. Assuming average variable costs are constant at all output levels, what is Ben
Ladenâ€™s total cost function before the proposed change?
B. What will the total cost function be if high quality natural herb dyes are used?
C. Assume rug prices remain stable at $50. What percentage increase in sales would be necessary to maintain current profit levels? 1 Expert's answer 2016-02-10T00:01:18-0500 P =$50, TP1 per unit = $40 is profit contribution, ATC2 =$15 per rug, TP1 = $35,000, Q1 = 1,000. A. If AVC is constant, then Ben Ladenâ€™s total cost function before the proposed change was TC1 = (P - TP1 per unit)*Q + FC = (50 - 40)*Q + 40*1,000 - 35,000 = 10Q + 5000. B. If high quality natural herb dyes are used, then TC2 = ATC2*Q + FC = 15Q + 5,000. C. If rug prices remain stable at P =$50, the percentage increase in sales to maintain current profit levels would be:
TR2 - TC2 = TP1
50*Q2 - 15Q2 - 5,000 = 35,000
35Q2 = 40,000
Q2 = 40,000/35 = 1142.86 = 1143 units.

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