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- 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
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 #285092Have 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 = 82,000Putting 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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