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Hi ,
If we are told that the maximum demand is 72000 units ,
can we assume that at this maximum demand the price will always be zero,like in this example
Earphones
JeweI Co is also producing luxury earphones and has entered two different new markets. In the USA, it is initially charging low prices so as to gain rapid market share while demand is relatively elastic. in Europe, it is initially charging high prices so as to earn maximum profits while demand is relatively inelastic.
Market research has revealed that the maximum demand for Jewel Co’s earphones in the USA is 72,000 units per year, and that demand will reduce by 8,000 units for every 55 that the selling price is increased. Jewel Co has calculated that the profit—maximising level of sales for its earphones, for the coming year, is 32,000 units.5 What is the optimum selling price at the profit-maximising level of sales (to the
nearest $)? $Thanks.
The assumption that the price will be zero at the maximum demand of 72,000 units is not correct
The maximum demand for Jewel Co’s earphones in the USA is 72,000 units per year, but it does not imply that the price will be zero at this level of demand.
The information states that demand will reduce by 8,000 units for every $55 increase in the selling price.To determine the optimum selling price at the profit-maximising level of sales, we need to use the given information and calculate the change in demand for each price increase.
So I think it is:
The profit-maximising level of sales for Jewel Co’s earphones is 32,000 units.
To find the optimum selling price, we can calculate the change in demand for each $55 increase in price and determine the corresponding selling price at the profit-maximising level of sales.First, we calculate the number of $55 increases in price needed to reach the profit-maximising level of sales:
Number of $55 increases = (72,000 – 32,000) / 8,000 = 5Next, we multiply the number of $55 increases by $55 to find the total increase in price:
Total increase in price = 5 * $55 = $275Therefore, the optimum selling price at the profit-maximising level of sales is $275.
Hi,
Oh sorry actually it says each $5 increase in price ,because when I copied the text the $ has been converted to 5
So you reach the same solution If you say Total increase in price 5*5=$25
because if we assume that at the maximum demand the price =0
so P=a-bq b=5/8000=.000625
0=a-.000625*72000
a=45
then P=45-.000625*32000 for optimum selling price
p= 45-20=25same as your approach .
can you please clarify.
Thanks.
Hi,
the question: Q 5 263 JEWEL CO (JUNE 2016, ADAPTED) in 2023-24Kaplan kit
5 answer:
$25
When P: 0, demand (Q) : 72,000 units
When P : $5, demand (0) : (72,000 units * 8,000 units) : 64,000 units. So, demand (Q) : 72,0007 SP, where ‘P is the selling price in 5 (because demand will drop by 8,000 units for every $5 increase in the selling price.)
If the optimum quantity Q : 32,000 units, P : 5/8,000 (72,000 units * 32,000 units) : $25.Thanks
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