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Dear John,
Currently, I have a problem with Example 2, Chapter 7 – Pricing in OT Course Notes:
Kennedy plc has established that the price demand relationship is as follows:
S.P. p.u. Demand
16.0 100
15.5 200
15.0 300
14.5 400
14.0 500
13.5 600
13.0 700They have also established that the cost per unit for production of jars of coffee is as follows:
Quantity Cost p.u.
100 14.0
200 13.9
300 13.8
400 13.7
500 13.6
600 13.5
700 13.4
800 13.3
900 13.2Required: Determine the optimal selling price in order to maximise profit by using tabulation of data.
When I use Demand Equation to check the result again, I can not have the same answer as one by using tabulation of data. Could you kindly help me solve this question by using Demand Equation?
Sorry for this inconvenience. I hope your reply soon.
If you are given the figures as a table (such as above) then you must use the tabular approach.
You must not use equations. There are two reasons for this.
Firstly, the relationship might not be linear, and you are only expected to deal with linear equations. (Here in fact it is linear, but it might not be in the exam).
Secondly, if you are given a table as above, then the only possible prices are those in the table. If other prices were possible then it could be that the best price was (for example) 15.15 per unit.
Using equations will give a price that might not be one of those in the table.(The lecture does make this clear if you listed to the end)
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