MANAGEMENT CONSULTANCY - Solutions Manual

CHAPTER 23 PFS: PROJECT BACKGROUND AND ECONOMIC ASPECT

I. Questions 1. Refer to page 459 2. Refer to page 461 3. Refer to pages 465 to 471 4. Refer to pages 472 to 473 5. Refer to page 472 6. Refer to page 476 7. Refer to page 477 II. Case Problem Step 1: Find the demand unit function. The data given in table form are plotted on a cc-place, and a freehand straight line is fitted to the points, as shown on page 17-2. From the chart we may read points (5.50, 4500) and (10, 0). Let p represent the price and q units of the mechanical toy. Substituting in formula (2) of Arithmetic (Linear) trend method, we have = 0 - 4500 q - 4500 p - 5.50 10 - 5.50 4.50(q - 4500) = -4500(p- 5.50), and q = Q(p) = -1000p + 10,000. Note that Q is the unit demand function where price is the independent and quantity the dependent variable. 23-1

Chapter 23

PFS: Project Background and Economic Aspect

Q (p) 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 Q(p) = -1,000p + 10,000 2,000 1,000 0 1 2 3 4 5 6 7 8 9
(10, 0) (5.50, 4,500)

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(PRICE - PESOS) Step 2: Find the total cost function.

Let C be such a function. Since fixed costs are expected to be P5000 and variable P2.00 per toy, the cost function by formula (1) of Arithmetic (Linear) trend method is C(q) = 2q + 5000. On the basis of functions Q and C we can derive the sales revenue and profit functions.

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