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- December 29, 2019 at 8:34 am
Hello Mr moffat
Hope you are fine.
In Chapter 7 regarding finding the optimal sale price we found out that:
Total revenue = aQ-bQ^2 , so it was an inverted U shaped diagram. (I am 100% happy with it)
But why in chapter 8, in example 4 that we want to draw total revenue , we suppose:
Total Revenue = 6Q , here we assume it is a linear! ( 6 is the sale price per unit).
I can not understand why the total sale revenue is NOT the same. Why in chapter 8 we ignore what we said in chapter 7.
ThanksDecember 29, 2019 at 11:30 am
In Chapter 7 we are considering reducing the selling price so as to increase the demand, and that is why the total revenue is a curve.
In Chapter 8 the selling price given in the question if fixed at $6 per unit and if that is the case then the total revenue will be linear.
It is of course quite possible in ‘real life’ that in order to get higher demand it will be necessary to reduce the selling price (and therefore the total revenue will again be a curve), but that will never be the case in the exam in questions on breakeven analysis.
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