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Hi Sir,
Please could you help me on this one:
If D is 5000 units when the price is $400 and 6000 when the price is $380, what is the Demand and MR equations? Also what is the optimum price?The answer from Kaplan say P=500-0.02Q and MR=500-0.04Q. Optimum Price is $350.
I get instead, P=300-0.04Q and so all results after are incorrect.
The Kaplan answer is correct and I have no idea how you arrived at your own answer.
b = (400 – 380) / (6,000 – 5,000) = 0.02.
Therefore a = 400 + (5,000 x 0.02) = 500.
So the price demand equation is 500 – 0.02Q (and the marginal revenue equation follows on automatically).
I cannot help you with the optimum price because you have not written whether the question wants maximum revenue or (more likely) maximum profit and you have not written what the marginal cost is.
My free lectures on pricing will help you.
Thank you Sir, I know what was my mistake. Simply (400-380)/(5000-6000) will give -0.02.
I inverted the quantities position at the denominator, instead, I understand we want to keep them in the form “the biggest minus the smallest”.
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