Answer the next 6 questions using the following information:

 

 

Drill Quest, Inc. manufactures drill bits for the oil industry. Drill Quest uses cost-plus pricing to set the price of its bits. Currently Drill Quest applies a 50 percent markup on average total cost. Average variable cost of producing bits is constant and equal to $6,000 per bit. Total fixed cost at Drill Quest is $550,000. DrillQuest currently produces 690 bits. Statistical estimation of demand for Drill Quest brand bits produces the following linear demand equation (where Q is the number of bits demanded and P is the price of bits): 

1.       Using cost-plus pricing, Drill Quest prices its bits at $                            per bit.

 

A. $10,195 B. $12,175 C. $797

D. $6,000 E. $6,797

 

2.       Using the cost-plus price in question 2, Drill Quest earns profit of (approximately) $                      by selling 690 bits.

 

A. $2,895,000 B. $2,345,000 C. $3,500,000 D. $3,895,000 E. $4,895,000

 

3.       Use the MR = SMC approach to finding the profit-maximizing point on the demand for Drill Quest's bits. The profit-maximizing number of bits to sell is

 

A. 250

B. 300

C. 350

D. 400

E. 450

 

4.       Use the MR = SMC approach to finding the profit-maximizing point on the demand for Drill Quest's bits. The profit-maximizing price to charge is $              per bit.

 

A. $15,000 B. $12,500 C. $10,378 D. $10,245 E. $10,000

 

5.       Use the MR = SMC approach to finding the profit-maximizing point on the demand for Drill Quest's bits. The maximum possible profit is $              .

 

A. $2,895,000 B. $2,345,000 C. $3,500,000 D. $3,895,000 E. $4,895,000

 

6.       If Drill Quest wishes to use cost-plus pricing, it can maximize profit by applying a markup of            percent on                    .

 

A.   150 percent; AVC

B.   150 percent; ATC

C.  50 percent; AVC

D.   50 percent; ATC

E.  250 percent; AVC

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Status NEW Posted 17 May 2017 02:05 AM My Price 9.00

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