Respond to each classmate 100 words a piece Classmate 1 This problem centers around the concept of break-even price, according to Investopedia break-even price “is the amount of money, or change in

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Respond to each classmate 100 words a piece

Classmate 1

This problem centers around the concept of break-even price, according to Investopedia break-even price “is the amount of money, or change in value, for which an asset must be sold to cover the costs of acquiring and owning it. It can also refer to the amount of money for which a product or service must be sold to cover the costs of manufacturing or providing it. In options trading, the break-even price is the price in the underlying  (Links to an external site.)asset at which investors can choose to exercise or dispose of the contract without incurring a loss.”

Break-even occurs when Total revenue (TR) = Total Cost (TC)…

Total cost (TC) = Total Fixed cost (TFC) + Total Variable cost (TVC)…

Here TFC = 1 million. As marginal cost is constant thus TVC = MC*Q…

It is given that MC = marginal cost – 1 and Q = quantity or sales = 1 million => TVC = 1*1 million = 1 million…

Thus TC = TVC + TFC…

=> TC = 1 million + 1 million = 2 million…

TR = Total revenue = P*Q where P = Price and Q= quantity or sales = 1 million…

=> TR = (1 million)*Q…

Thus TR = TC => (1 million)*P = 2 million…

=> P = $2

Break-even price is $2

So $2 represents the price per unit, in this scenario, the wire harness from GM in order to break-even. As we can see, this is dependent on the total cost, total fixed cost, and the total variable cost.

Classmate 2

A shortcut often used is break-even analysis. Break-even analysis is easy and provides simple answers. Break-even analysis asks the question, ” Can I sell enough to break even?” When businesses sell more than the break-even quantity, the entry was profitable. To determine the break-even quantity, the firm in the scenario must differentiate between fixed and marginal costs. The marginal cost fluctuates with quantity, whereas fixed costs stay the same. The break-even quantity is Q (quantity)= F (annual fixed cost)/ P(Price) – MC (marginal cost). The break-even quantity will lead to zero profit. Every unit sold obtains the contribution margin or (P-MC). The name contribution margin is due to the amount that one sale contributes to profit. The firm in the scenario needs to sell at least the break-even quantity to cover fixed costs. If the firm sells more than the break-even quantity, it will make enough to cover fixed costs and profit  (Froeb.L, McCann, Shor, & Ward, 2018, p. 54) . The given in the scenario is fixed cost equals one million dollars, the marginal cost equals one dollar, and sales equals one million dollars. Thus, break-even occurs when Total Revenue (TR) = Total Cost (TC). The firm utilized the following formulas to determine the break-even price: Total Cost (TC) = Total Fixed Cost (TFC) + Total Variable Cost (TVC)TFC = $1 million TVC= MC * Q; MC= 1 and Q= 1 million; 1* 1 million = $1 million Therefore, TC= TVC+ TFCTC= 1 million + 1 million = $2 million P= $2 million / $1 million = $2The break- even price is $2.

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