APMProfit maximization equations

The usual steps to solve the problem are:

1. Use the demand function to generate pairs of demand quantity and prices of the product.
2. Calculate the unit contribution amount of the product at every demand quantity.
3. Multiply each unit contribution amounts with its respective demand quantity
4. The demand quantity that has the biggest total contribution is the optimal quantity for sales/production.

Much appreciated Sosologos. Will look into this in detail.

Any ref. to indepth articles anyone?

Cheers again,

It took me a year to understand that question , not really understand but just figure our how to solve a profit maximizing price question.

There is a question in BPP revision kit by name VISION and in Dec 09 exam too , just go through it and learn the formula and steps. That's it (and do hope it doesnt turn up in exams)

The paradox is, when i emailed BPP tutors they said this formula is derived by economists so we dont have to worry about it , just do it! duh! they do mean that we do it without understanding it so lets do what it takes !

keep going!

That equation just reflects a downward sloping demand curve mathematically. Therefore, the construct of the equation must be something q = a - bp, where q is the quantity demand per period, a and b is constants, p is the price. The higher the p is set, the lower the q will go. When p rises to a certain amount, quantity demand will drop to 0.

You may derive a real world demand function yourself by collection pairs of price and sales quantity of a product across a period. Then, you may use the regression formula, high-low method, or the Excel charting function to derive a demand function of the product. All those techniques should have been learnt in F2 or CAT.

Hi guys
did you see Question 4 June 2009 , as it concern profit maximaization , but my concern is converting TR into MR as according the answer TR= 760x -.25X(square)
then MR = 760-0.5 x , why 0.5 not 0.25

It's 0.5 because you have to differentiate the equation TR = 760X - 0.25X (squared).

So MR = 760 - (0.25 times 2) X

So generally If TR = aX -bX (squared)

Then MR = a - 2bX