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Hi,
I am struggling to understand how BPP authors have calculated the profit for Birdcam-V. The text is: “The marketing director has estimated that at a selling price of $600 per unit, a total of 85,000 units p.a. would be sold during y/e 30 Nov 20×7 and that each increase/decrease in the selling price of $10 will cause quantity demanded to decrease/increase by 1,000 units. The variable cost per unit is expected to remain constant at $180. […] The directors have agreed to adopt the combination of selling price and output that will maximize profit earned from sales of the Birdcam-V.”
I understand Step 1 where they use demand equation to calculate the price at which demand is zero. P=a-bx => 600=10/1,000*85,000 => a = 1450
Step 2 is substitute a into P=a-bx => P=1450-0.01x
However I don’t understand the following steps.
At Step 3 they derive marginal revenue as MR=1450-0.02x. Where is this 0.02 coming from?Thank you for your help!
IrinaIf P = a – bx then MR = a-2bx.
This is just a standard result arising from the mathematical process of differentiation.
Whenever needed ACCA provide a formula to alloy to go from P to MR and it would have been provided somewhere with the real exam paper.
[differentiation is not on your syllabus, but in case you are interested:
P = a – bx
R = Px = ax – bx^2
MR = dR/dx = a – 2bxAs I say you don’t need to know this step]
[You dont need to know how
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