5. You run a newsstand with your friend Lurch. You buy magazines at the list price of $5 less 25% discount. Your fixed costs, which include a hearing aid for Lurch and special cream for your false teeth (you must smile at the customers!) come to $190 per week. You usually sell the magazines at the list price. Answer these questions independently:
a. If the desired profit is $140, how many magazines must you and Lurch sell each week?
The TR is 5X, TC is 5*0.75X, FC = 190 + 140 (the desired profit is a fixed cost)
5X = 3.75X + 330
1.25X = 330
X = 264
b. If the cost to purchase the magazines is 30% off the list price, and 200 magazines are sold, what is the lowest price they can charge for each magazine and still break even?
Now we are looking for a price, not a quantity of sales. Call the unknown price P.
200P = 5*0.7*200 + 190
200P = 700 + 190
200P = 890
P = 4.45
If you sold at $4.45 you would exactly break even.
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