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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Pricing calculation? correct?
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 = 1500
Put 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 = 2500
Put 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 = $25
The 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?
It seems correct, but please do not keep simply typing out what is in my lectures 🙂