Gamma Corp

Essay

Gamma Corp. manufactures and sells widgets for $6.00 each. Therefore, its total revenue, TR, from the sale of X widgets in a year is TR = $6X
It costs Gamma $2 for materials and labour to produce each widget. In addition, Gamma expects to incur $80,000 of other costs during a year. Therefore, Gamma's total costs for the year, TC, are expected to be
-720TC = $2X + $80,000
Gamma's expected net income, NI, for the year will be
NI = TR - TC
= $6X - ($2X + $80,000)
= $4X - $80,000
a) What is the slope and TR-intercept of a TR vs. X plot?
b) What is the slope and TC-intercept of a TC vs. X plot?
c) What is the slope and NI-intercept of an NI vs. X plot?
d) Which of the three plotted lines is steepest?
e) How much does NI increase for each widget sold?
f) If Gamma were able to reduce its materials and labour cost to $1.75 per widget, state for each plotted line whether its slope would increase, decrease, or remain unchanged.