Question

# When a sales manager charged a price of \$10, approximately 4,000 units were sold, however, when...

When a sales manager charged a price of \$10, approximately 4,000 units were sold, however, when the price increased by 10% the demand decreased by 1,000 units. The Manager wants to know the following (based on operating cost of \$7 per unit:

What is the MR? (b) What price would maximize profit? (c) What impact would a price decrease have on revenue?

a) Marginal revenue is the rate of change in the total revenue with respect to change in total sales.

therefore:

Marginal revenue = Chage in Total Revenue/ Change in Total sales

 price level sales total revenue marginal revenue 10 4000 40000 - 11 3000 33000 -7000/-1000= 7

b) profit maximise if diffrence between total revenue and total cost is maximum

 price level units total revenue operating cost total cost profit 10 4000 40000 7 28000 12000 11 3000 33000 7 21000 8000

Therefore profit is maximize at Price \$10 per unit which is \$12000 on the sale of 4000 units

c)

 price level unit sold total revenue 10 4000 40000 11 3000 33000

with 10% rise in in price level from \$10 to \$11 total revenue falls from \$40000 to \$33000 which is reduced by \$7000

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