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A company is selling a product at a price of $120 per unit and at this price it is selling 200,000 units per period. It has been estimated that for every 5% increase in price, sales demand will fall by 10,000 units.
At what selling price will total sales revenue per period be maximised?-The answer is $110.
-I do have watched your lectures and followed your steps to answer this question and I have arrived at P=220-0.0005Q-With no further information, I am unable to obtain the answer. Could you please help?
Thanks.
Maximum revenue occurs when MR = 0.
You know from the formula sheet that MR = 220 – 0.001Q
This equals zero when Q = 220,000.
When Q = 220,000, P = $110
I still has not understand the part where you said “Maximum revenue occurs when MR = 0.” I
Could you briefly explain how?
I do have watched your lectures but still has some issue to undertand it.
Thanks.
If you look at the graph of the revenue, when the extra revenue (marginal revenue) is positive then total revenue increases. When the extra/marginal revenue is negative then the total revenue reduces. The maximum revenue – the top of the curve – where the extra/marginal revenue is zero.
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