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In the below question, I am doing the b function by dividing -1/800 which gives me 0.00125 and therefore option 1 (one) as the answer…. but in the answer sheet the correct option is 2 and they have divided -1/0.8…. I don’t understand why and how they got 0.8
Abel Co currently sells its major product line for $25, at which price monthly demand is 4,000 units. Market research has suggested that a cut in price of $1 would increase monthly sales by 800 units and that the demand curve is linear.
If P denotes selling price in $ and Q monthly demand in thousands of units, which of the following correctly describes the demand curve?
P = 30 ? 0.00125Q
P = 30 ? 1.25Q
P = 24 ? 0.8Q
P = 24 ? 800QIt is because the question specifies that Q is the monthly demand in thousands of units.
800 is 0.8 x 1,000 and therefore b = 1/0.8 = 1.25.
Also, you can check that 2 is correct because at the current selling price q = 4,000/1,000 = 4.
and 30 – 1.25Q = 30 – (1.25 x 4) = 25, which is the current selling price.
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