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.
Marginal revenue = Chage in Total Revenue/ Change in Total sales
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b) profit maximise if diffrence between total revenue and total cost is maximum
|price level||units||total revenue||operating cost||total cost||profit|
Therefore profit is maximize at Price $10 per unit which is $12000 on the sale of 4000 units
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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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