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Pricing calculation? correct?

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 9 months ago by John Moffat.
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    Posts
  • October 30, 2021 at 8:02 pm #639507
    Syed Ahsan Ali
    • Topics: 107
    • Replies: 66
    • ☆☆

    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?

    October 31, 2021 at 2:57 pm #639576
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49902
    • ☆☆☆☆☆

    It seems correct, but please do not keep simply typing out what is in my lectures 🙂

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