1 Assume you are a wheat farmer in North Central Kansas you

1) Assume you are a wheat farmer in North Central Kansas, you have fixed costs per acre of $84,
variable cost per bushel is $3.64, and you produce 56 bushels per acre.

-What is your total variable cost per acre?
-What is your total cost per acre?
-If the price you receive is $4.90/bushel, what is your revenue?
-If the price you receive is $4.90/bushel, what is your profit?
-If the price you receive is $4.90/bushel, what is your break-even quantity?
-If you produce 56 bushels per acre, what is your breakeven price?

Solution

a) Total variable cost represents all cost that incurred in production which varies along with variation in production level.

Thus total variable cost = variable cost per bushel * units of bushels produced = 3.64 * 56 = $203.84

b) Total cost per acre = total variable cost + total fixed cost = $203.84 + $84 = $287.84

c) Total revenue is the total price that we get with the sale of all units.

Total revenue = price per bushel * total bushels sold = $4.90 * 56 = $274.4

d) Total Profit = Total Reveneu - Total Cost = $274.4 - $287.84 = $ -13.44

e) At break even quantity total revenue equals total cost.

Thus at break even: Total revenue = Total Cost

Price * Break even Quantity = (Variable cost * Break even Quantity) + Fixed cost

4.90 * Q = 3.64 Q + 84

Q = 66.67 = 67 units approx.

f) If break even Q = 56, then

56 P = 56*3.64 + 84

Break even Price = $5.14