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Which of the following statements(s) regarding Jewel Co’s fixed costs is/are correct?
1) Jewel Co’s fixed costs are stepped.
2) Increasing batch sizes from 1,000 units to 2,000 units would dramatically reduce
setup costs and increase profits.Both options are correct.
Hello tutor!
Hope you’re healthy and wealthy.
So in this question both the statements are correct. However, I’ve a doubt regarding 2nd statement. How the cost will reduce dramatically if we increase batch size to 2,000 units could you please explain ?
Set up cost is step fixed cost which is $10,000 at 1 and 2 batches.
$12,000 at 2 and 4 batches.
$14,000 at 5 batches.
There are 1,000 units in 1 batch.
If you want more information I can provide.
By the way this is an OT Case named Jewel Co.The following statements have been made about the tabular method used to establish
an optimum price:
Which of the following statement(s) regarding Jewel Co’s fixed costs is/are correct?1) With the tabular method, there must be a consistent relationship between price
(P) and demand (Q), as well as a close relationship between demand (Q) and
marginal costs (MC).
2) The tabular method is only suitable for companies operating in a monopoly.Only 2nd statement is correct.
This is another question of Jewel co. case.
I understand that in tabular method consistent relationship is not necessary however, I’m not able to understand the 2nd part of 1st statement in which they are saying that close relationship b/w demand and MC.
Moreover, I’m not able to understand why 2nd statement is correct.
Could you please help me to figure it out.
Thank you!!First question
By increasing the batch size, you reduce the number of batches required, which can place you in a lower step of the fixed cost structure.
This reduction in the number of batches can lead to a dramatic decrease in setup costs, thereby increasing profits.
Second question:
With the tabular method, there must be a consistent relationship between price and demand .
Actually this is not necessarily true, as the relationship between price and demand can vary.As well as a close relationship between demand and marginal costs
This part is also not necessarily true. The tabular method does not require a close relationship between demand and marginal costs.All in all the tabular approach is where we are given all possible prices and details of costs and volumes at each price. We then simply calculate the profit at each possible price to find the price with the highest profit.
Then on to the second statement:
The tabular method is only suitable for companies operating in a monopolyThis statement is correct because the tabular method is often used in situations where a company has significant control over the market price, which is typically the case in a monopoly.
In a competitive market, prices are more influenced by market forces, making the tabular method less applicable.This question has been modified by Kaplan, so is not an exact exam standard style unfortunately
Hello tutor!
Thanks for the responses.
However, regarding the second statement in Monopoly I thought pricing won’t impact on demand required so then why tabular method is good in Monopoly.One more thing which I need to ask that in 2nd statement why Tabular method and why not Algebraic method and why not both method ?
This question has been modified by Kaplan, so is not an exact exam standard style unfortunately
I will try once moreIn a monopoly, the tabular method is suitable because it allows the company to determine the optimum price by listing all possible selling prices and calculating the total profit for each. This method assumes that changes in price will result in changes in demand due to the lack of competition. In a monopoly, the company has significant control over the market price, and the demand is influenced primarily by the price set by the company itself, rather than by competitors’ prices. Therefore, the tabular method is effective in this environment as it helps the monopolist find the price that maximises profit.
From the 2nd Q ……The first statement is not correct because the tabular method does not require a consistent relationship between price (P) and demand (Q), nor does it necessitate a close relationship between demand (Q) and marginal costs (MC). The tabular method simply involves listing different prices and calculating the corresponding profits to find the optimal price.
So I am not going to play question ping pong
This as I have already stated is not a true exam question
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