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I have been learning PED and straight line demand, I have the first part of the process I think, however, when working out the Marginal cost and total contribution I am having a few difficulties
I get that MR=MC so if you are given a variable cost how to work that through and work out Q, however, the notes I have say substitute Q into the price function then just gives you an answer and I cant see how this was reached please can anyone provide an extra step that I may be missing?
So the equation is: P = 600 – 0.4Q.
Forecast the demand at a given selling price At a price of $300
300 = 600 – 0.4Q
0.4Q = 300 Q = 300/0.4 Quantity demanded (Q) = 750 units per monthMR = 600 – 0.8Q MC = VC so equating MR = MC: 100 = 600 – 0.8Q
So Q = 625
And substituting Q into Price function, P = $350 ??????????????? – how?P = 600 – 0.4Q
If Q = 625, then P = 600 – (0.4 x 625) = $350.
(You should not use the notes without watching the lectures – they are lecture notes and it is in the lectures that I explain and expand on the notes. If you are not watching the lectures for any reason then you must buy a Study Text from one of the ACCA approved publishers and study from there.)
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