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BPP revision kit, part B, CBE style OTQ bank questions, page no. 28
120) Market research into demand for a product indicates that when the selling price per unit $145, demand in each period will be 5000 units; if the price $120, demand will be 11250 units. it is assumed that the demand function for this product is linear. The variable cost per unit is $27.
What selling price should be charged in order to maximize the monthly profit ?
(There were no choices given) ?
But the answer is $96, idk how they made it.
Please, reply to this question.The price demand equation is P = 165 – 0.04X
Therefore MR = 165 – 0.08X
For maximum profit, MR = MC,
So…165 – 0.08X = 27
Therefore X = 1725
Therefore P = 165 – (0.04 x 1725) = $96
This is all explained in my free lectures on pricing.
The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.
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