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On Chapter 7 Pricing eg. 2, why are we not fixing the price at $15.50 or the Marginal Revenue calculation where profit is $120 but rather on $15 where profit is only $40 .
Are we saying that the price is fixed from $15 upwards or fixed only on $15.00. Help please as a bit confused here.
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Have you watched the lecture (because there is no point in using the notes without the lecture)?
At a selling price of $15.50, the profit is $320. At a selling price of $15, the profit is $360.
$360 is the highest profit possible and therefore $15 is the optimum selling price.Alternatively, dropping the price from 16 to 15.50 is worthwhile because the marginal revenue (1500) is more than the marginal cost (1380). Dropping the price from 15.5 to 15 is worthwhile because the marginal revenue (1400) is more than the marginal cost (1360).
Dropping from 15 to 14.5 is not worth while because the marginal revenue (1300) is less than the marginal cost (1340).Your marginal profits of 120 and 40 are extra profits to be made every time we drop the price. If there is extra profit to be gained by dropping the price then it has to be worthwhile, however small the extra profit is.
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