ACME Inc. currently sells a product for $1,100 which results in demand being 2,000 units. Management is considering increasing the price to $1,150 however a price increase will result in a decrease in demand by 200 units. The product has the following cost structure per unit:   Direct material $38.00 Direct labour $12.00 Direct expenses $25.00 Variable overheads $15.00 Fixed overheads $50.00 Variable selling expense $10.00 Fixed selling expenses $75.00   Management wants to know is optimal production quantity and its maximum profits.     Required: (a) Determine the price equation. (b) Determine the optimal price and quantity. (c) Determine the optimal profits

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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ACME Inc. currently sells a product for $1,100 which results in demand being 2,000 units. Management is considering increasing the price to $1,150 however a price increase will result in a decrease in demand by 200 units. The product has the following cost structure per unit:

 

Direct material

$38.00

Direct labour

$12.00

Direct expenses

$25.00

Variable overheads

$15.00

Fixed overheads

$50.00

Variable selling expense

$10.00

Fixed selling expenses

$75.00

 

Management wants to know is optimal production quantity and its maximum profits.

 

 

Required:

(a) Determine the price equation.

(b) Determine the optimal price and quantity.

(c) Determine the optimal profits

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