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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Profit maximising selling price question
Good Afternoon Mr Moffat,
I am hoping that you can help me with a question. I have spent a lot of time trying to solve this but I seem to be missing something…. 🙁
The question is:
The maximum demand for a company’s product M is 100,000 units per annum. The
demand will be reduced by 40 units for every increase of $1 in the selling price. The
company has determined that profit is maximised at a sales volume of 42,000 units per
annum. What is the profit maximising selling price for product M?
So P=a-bQ; P=a-b100,000
also, MR=MC=a-2bQ so MR=a-2b42,000
I seem to have difficulty of working out b… or maybe I got it all wrong? Not sure.
Any help on this would be much appreciated.
Thanks a lot in advance.
Kind Regards,
Nataliya
I am puzzled because you asked the same question yesterday, and I answered you yesterday (I have just checked and my answer is still there) 🙂
The question tells the sales volume that gives maximum profit (42,000) and so they have already done the MR = MC exercise for you.
So all you need to do is put Q = 42,000 into the price demand equation to find out what the selling price must be.
The price demand equation is P = 2,500 – 1/40 Q
So when Q = 42,000, the selling price must be 2,500 – 42,000/40 = 1,450 per unit.
Thank you so much! it really makes sense. The bit that I was missing is that max demand occurs when SP is 0!!!
Sorry for reposting this few times. It is strange but I could not view your reply when logged in on my pc. I eventually worked it out that you replied and viewed it on my phone?! which is very strange….
You are welcome (and I don’t know why it worked on your phone and not on your PC) 🙂