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A company is selling a product at a price of $120 per unit. At this price it is selling 200,000 units per period.
It has been estimated that for every $5 increase or reduction in price, sales demand will fall or increase by
10,000 units.
At what selling price will total sales revenue per period be maximized?can you please explain this question? i tried to solve this.
p= a-bQ
120= a-0.0005(200,000)
120= a-100
a= 120+100
a= 220In this question they haven’t give any marginal cost so how can we calculate selling price? and what does this term mean ‘total sales revenue per period be maximized’
You do not need the marginal cost because the question does not ask for the maximum profit – it asks for the maximum revenue.
“Total sales revenue per period be maximised” means they want to know what selling price will give the maximum sales revenue.
The maximum sales revenue occurs when the marginal revenue is equal to zero.
The marginal revenue (using the formula from the formula sheet) is a – 2bQ, which in this question is equal to 220 – 0.001Q
This equals zero when Q = 220000If you put q + 220,000 in the price demand equation then P = 220 – 0.0005×220,000 = 110
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