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Profit Maximizing

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Profit Maximizing

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.
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  • November 24, 2015 at 9:06 pm #285017
    Jodie-Kay
    Participant
    • Topics: 2
    • Replies: 0
    • ☆

    At a selling price of $200, the demand will be 100,000 units per annum. The demand will change by 10,000 units for every $30 changes in selling price. The fixed costs are $60,000 per annum and the Variable cost id $8 per unit.

    At what selling price per unit will profit be maximize?

    November 25, 2015 at 8:00 am #285092
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51583
    • ☆☆☆☆☆

    Have you watched our free lectures on pricing? If not then I really do suggest that you do.

    First you need to get the price demand equation, which is:
    P = 500 – 0.003Q
    Having got the values of a and b for the price demand equation, you can then use the marginal revenue formula given on the formula sheet:
    MR = 500 – 0.006Q
    For maximum profit, MR = marginal cost, which is $8
    So 500 – 0.006Q = 8
    Therefore 0.006Q = 492
    Therefore Q = 492 / 0.006 = 82,000

    Putting Q in the price demand equation gives:
    P = 500 – 0.003 x 82,000 = $254 per unit

    (Again, I really do suggest that you watch the free lectures because I go through almost identical examples in the lecture.)

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