Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Pricing – Optimal selling price
 This topic has 4 replies, 2 voices, and was last updated 1 year ago by John Moffat.

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October 29, 2020 at 7:22 am #593393oakrb
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I did the question, example 4. Pages 25
Which reads, if the selling price were to be INCREASED by $1per unit, it is estimated that demand will fall by 2500 units. I did the calculation and the price at which demand is equal to zero is $18.40.
However, in example 5 on page 26, the second sentence reads, it has been determined that a REDUCTION in the selling price of $1 will result in an addition sales of 100 units. According to my calculation, b times q is $20.
1) Why did you add the $20 to $30 and arrived at $50; instead of, deducting the $20 from $30 to arrived at $10?
2) Are we alway going to increase the current figure even when it states a “reduction” in the selling price?
My reason for asking this question is because of the fact that the question states a “Reduction in the selling price. Not an “increase” in the selling price. I am a bit confused.
I am therefore asking for your kind assistance. Please guide me accordingly
Thanks.
October 29, 2020 at 9:34 am #593406John MoffatKeymaster Topics: 57
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‘a’ in the formula is the price at which the quantity will be zero.
Increasing the selling price means a reduction in the quantity sold. Reducing the selling price means an increase in the quantity sold.
It sounds from what you have written that you are using the notes without watching the lectures, because in the free lectures I work through the examples and explain and expand on the notes. Using the notes without the lectures is completely pointless – they are just lecture notes. If you choose not to watch the lectures then you need to buy a Study Text from one of the ACCA approved publishers and study from there if you are to pass the exam.
October 29, 2020 at 1:32 pm #593433oakrb Topics: 1
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I have been watching the lectures and they are really quite good. That is why I was able to ask you why you added $20 to the current price of $30 in you explanation. Although I understand the concept, “a’ in the formula is the price at which the quantity will be zero, the calculations seem a bit unclear in example 5.
Increasing the selling price means a reduction in the quantity sold. Reducing the selling price means an increase in the quantity.
Must I ALWAYS increase the current price after calculating b times q? Is there anytime I would subtract b times q from the current price. This is critical for me to understand just looking for a bit of clarity
Thanks
October 29, 2020 at 1:45 pm #593436oakrb Topics: 1
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From your response, it seems as though you are saying, to calculate “A” we must always assume that the demand will be equal zero. Therefore, the that the current must always be increased by b times the current quantity. Is this correct?
Because I did the calculations in example 5 as a subtraction from the current price simple because the second sentence stated “a REDUCTION in the selling price of $1 will result in an addition sales of 100 units”. Please correct me if I am wrong.
Thanks.
October 30, 2020 at 8:59 am #593498John MoffatKeymaster Topics: 57
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It actually states on the formula sheet provided in the exam that ‘a’ is the price when Q = 0 !!!
(And it must be because of our assumption that the price demand relationship is linear)For the same reason, if a reduction in the selling price of $1 results in additional sales of 100 units, then it automatically means that an increase in the selling price of $1 will result in a reduction in sales of 100 units.

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