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Hi John
This question drove me nuts today! How is ‘a’ calculated if all you have is b=0.0004 & Maximum Demand is 1,000,000. There was no mention of existing selling price and corresponding demand. Thanks. (Sorry I also posted this by accident in Acca forum)I had this exact problem too. I’ve never seen this kind of question in ANY of the revisions I did. I was totally lost!!
You can find a through the equation MC = MR to maximise profit
MC is the total variable costsSon: Please do not answer in this forum – it is the Ask the Tutor Forum, and you are not the tutor 🙂
(Also, what you have written is wrong – the question does not give the marginal cost, and it is not needed !!!)
jdeally:
The lower the selling price, the higher will be the demand.
Therefore maximum demand will occur when the selling price is zero.So putting it in the price demand equation:
0 = a – (0.0004 x 1,000,000)
a = 400
Sir, I was unlucky not to realize this simple thing that price is 0 when demand is maximum, and I started calculaton in this way:
I left “a” unknown, a-2bQ, b=0.0004, Q=1 mln.
So, I mistakenly started solving as :a- 2*400=mc.After having found value of mc, I found “a”.I know that my mistake is that 1 mln is not profit maximising quantity,such a silly mistake…
My question is, provided that I show good calculation of MC, and logic of finding Price (if even at the very beginning my equation was wrong and that I arrived at wrong value of P), how do you think, will I gain marks for calculations and how many points you think they will give me?
Thank you.
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