Sample Essay

If total fixed costs had been increased to 100, the Average fixed costs curve would have risen higher than in the figure above. ATC would also have risen but by a smaller margin due to the AVC component in ATC. MC would not be affected.

If total variable cost had been \$ 10 lower, AFC would not have been affected. ATC would have been lower than the current position and MC would have decreased by \$10 at each unit of output.

A5) The DuPont model calculates ROI as follows:

ROI = Net Income / Sales * Sales / Average Total Assets

ROI = Margin * Turnover

Margin = Net Income / Sales

Turnover = Sales / Average Total Assets

1) Firm D Data:

Net Income is \$ 27,900; Sales are \$ 930,000; and Total Assets is \$ 465,000.

Margin = 27,900/930,000 = 0.03 or 3 %

Turnover = 930,000 / 465,000 = 2

ROI = 0.03 * 2 = 0.06 or 6 %

2) Firm E Data:

Net income is \$75,000; Sales are \$1,250,000, and ROI is 15%.

0.15 = 75,000 / 1,250,000 * 1,250,000 / Average Total Assets

Average Total Assets = 500,000

Turnover = 1,250,000 / 500,000 = 2.5

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