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?

Homework Answers

Answer #1

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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