Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Pricing calculation? correct?

- This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.

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- October 30, 2021 at 8:02 pm #639507
We can calculate Max Profit and Max Revenue like this:

To calculate Max Profit and Max Revenue we need to use formula MR = a – 2bQ

(1) Maximum Profit is where the MR = MC

For Maximum Profit:

MR = a – 2bQ = MC

MR = 50 – 2($1/100)(1500) = $20

MR = 50 – 0.02Q = $20

MR = -0.02Q = $30

Q = 30 / -0.02

Q = 1500Put that Q=1500 into Price/Demand equation to find out the maximum selling price where we have maximum profit;

P = a – bQ

P = 50 – ($1/100)(1500)

P = 50 – 0.01(1500)

P = 50 – 15

P = $35(2) Maximum Revenue is where the MR = 0

For Maximum Profit:

MR = a – 2bQ = 0

MR = 50 – 2($1/100)(1500) = 0

MR = 50 – 0.02Q = 0

MR = -0.02Q = 50

Q = 50 / -0.02

Q = 2500Put that Q=1500 into Price/Demand equation to find out the maximum selling price where we have maximum profit;

P = a – bQ

P = 50 – ($1/100)(2500)

P = 50 – 0.01(2500)

P = 50 – 25

P = $25The quantity (Q) will be higher in maximum revenue because max revenue will be when we have more units sold and it is where we have marginal revenue is 0

Is that all correct?

October 31, 2021 at 2:57 pm #639576It seems correct, but please do not keep simply typing out what is in my lectures 🙂

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