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ABC plc is about to launch a new product. Facilities will allow the company to produce up
to 20 units per week. The marketing department has estimated that at a price of $8,000
no units will be sold, but for each $150 reduction in price one additional unit per week will
be sold.Fixed costs associated with manufacture are expected to be $12,000 per week.
Variable costs are expected to be $4,000 per unit for each of the first 10 units; thereafter
each additional unit will cost $400 more than the preceding one. The most profitable level
of output per week for the new product is:
A 10 units
B 11 units
C 13 units
D 14 unitsYou have headed this post ‘Kaplan’s assessment’.
If you have already submitted it then they will have sent you answers. So ask which part of the answer is causing you a problem and I will try and help.
If you have not yet submitted it, then we are not here to do your homework for you 🙂
(the approach to both is dealt with in our free lectures on pricing and on linear programming)
Sorry sir.
I got the solution but I can’t get how they calculated selling price here. Could you please tell me how to calculate selling price in this question?I got it sir, Its 8000-(150 x 11)= 8000-1650=6350 for 11 units and likewise.
Thanks 🙂Hi.
Can you please tell me how to solve that question? I tried but i didnt get the right answer.
thanks.
I don’t know the right way to do it , now I try to explain to you. the way I used is tabular approach…………revenue…..vcost……marginalrevenue……..marginalcost
10units:10*6500=65000……40000……….65000…………………….40000
11units:11*6350=69850……44400…………4850………………………4400
13units:13*6050=78650……54400………..8800……………………..10000
14units:14*5900=82600……60000………..3950……………………….5600
based on the idea: when MR=MC, it is to achieve maximum profit, look at 11 units, the marginal revenue 4850 is similar marginal cost 4400, so 11units is best option.
hopefully It can help.
have a good night
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