ABC’ company’s cost function for the next four months is C= 500,000 + 5q.

Question

Required:
a) The break-even dollar volume of sales if the selling price is Birr 6 per unit.
b) What would be the company’s cost if it decided to shut down operations for the next four months?
c) If, b/s of a strike, the most the company can produce is 100,000 units, should it shut down? Why or why not?

Answer 1

(a) 6q = 500,000 + 5q
q = 500,000
volume = 6*500,000 = 3,000,000

See what you can do with (b) and (c) now.