Reference no: EM132832475
Suppose that a firm operates under the following conditions: Variable costs are P10.00 for each unit of production and fixed costs are P1 million per quarter. Currently, prices average P25.00 per unit and volumes are 80,000 units per quarter. What is the current profitability of the firm?
a. What is the current profitability of the firm?
b. What is the improvement to profitability if variable costs are reduced by 1 percent, holding all else constant?
c. What is the improvement to profitability if fixed costs are reduced by 1 percent, holding all else constant?
d. What is the improvement to profitability if units sold are increased by 1 percent on average, holding all else constant?
e. What is the improvement to profitability if the price is increased by 1 percent, holding all else constant?
f. In isolation, improving which aspect of the firm will have the largest positive impact on profits-variable costs, fixed costs, units sold, or price?
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