Puda Development Company (PDC) is a small real estate developer operating in the Eastland’s Valley. It has seven permanent employees whose monthly
salaries are given below:

Employee Monthly salary
(Sh)
Managing Director 100,000
Manager, Development 60,000
Manager, Marketing 45,000
Project Manager 55,000
Finance Manager 40,000
Office Manager 30,000
Receptionist 20,000
PDC leases a building for Sh. 20,000 per month. The cost of suppliers, utilities
and leased equipment runs for another Sh. 30,000 per month. PDC builds only
one style house in the valley. Land for each house costs. Sh. 550,000 and
lumber, supplies and others run for another Sh. 280,000 per house. Total
labour costs amount to Sh. 200,000 per house. The one sales representative of
PDC is paid a commission of Sh. 20,000 on the sale of each house. The selling
price of the house is Sh. 1,150,000.
Required:
(i) Identify all the costs and denote the marginal revenue and marginal cost
for each house. (4 marks)
(ii) Determine the monthly cost function; C(x), revenue function; R(x) and
the profit function; P(x) (4 marks)
(iii) Determine the break-even point for monthly sales of the houses. (3
marks)
(iv) Determine the monthly profit of 12 houses per month are build and
sold.
(2 marks)
(c) What are some of the simplifying assumptions in part (b) above? (4
marks)