Normally the selling price of a product, p, is related to the demand according to the following relationship: p = a - bD. However, a company has found that the price (in dollars) of its product can be related to demand, D, according the following different equation: p = 88.5 0.08(D0.75) Demand is given in units per year. In addition, there is a fixed cost of $40,000 per year and a variable cost to manufacture the product is $40 per unit. Determine the levels of demand that maximizes (a) total revenue, and (b) profit for this product.

Normally the selling price of a product, p, is related to the demand according to the following relationship: p = a - bD. However, a company has found that the price (in dollars) of its product can be related to demand, D, according the following different equation: p = 88.5 0.08(D0.75) Demand is given in units per year. In addition, there is a fixed cost of $40,000 per year and a variable cost to manufacture the product is $40 per unit. Determine the levels of demand that maximizes (a) total revenue, and (b) profit for this product.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter4: Extent (how Much) Decisions

Section: Chapter Questions

Problem 3MC

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