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At a selling price of $200, the demand will be 100,000 units per annum. The demand will change by 10,000 units for every $30 changes in selling price. The fixed costs are $60,000 per annum and the Variable cost id $8 per unit.
At what selling price per unit will profit be maximize?
Have you watched our free lectures on pricing? If not then I really do suggest that you do.
First you need to get the price demand equation, which is:
P = 500 – 0.003Q
Having got the values of a and b for the price demand equation, you can then use the marginal revenue formula given on the formula sheet:
MR = 500 – 0.006Q
For maximum profit, MR = marginal cost, which is $8
So 500 – 0.006Q = 8
Therefore 0.006Q = 492
Therefore Q = 492 / 0.006 = 82,000Putting Q in the price demand equation gives:
P = 500 – 0.003 x 82,000 = $254 per unit(Again, I really do suggest that you watch the free lectures because I go through almost identical examples in the lecture.)
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