Royersford Knitting Mills Ltd. sells a line of womens knitunderwear. The firm now sells about 20000 pairs a year at anaverage price of $10 each. Fixed costs amount $60000 and totalvariable costs equal $120000. The production department hasestimated that a 10 percent increase in output would not affectfixed costs but would reduce average variable cost by 40 cents.

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