Question

Graphic Tees is a design company that sells custom printed t-shirts. The firm sells printed t-shirts under a block pricing scheme that charges $10 per t-shirt if the customer buys up to 10 t-shirts and $8 if they buy 11 to 20 t-shirts. The demand curve is Q = 500 - 10P, and the marginal cost of a t-shirt is $4. What are the profits for Graphic Tees under this block pricing scheme?

$2480

$1680

$4080

$2400

Answer 1

At $8, the demand for T-shirt is 500-10*8 = 420

Suppose, all the consumer buys 11 to 20 shirts(the worst case) profit scenario, then the total profit will be 420*(8-4) = $1680

At $10, the demand for T-shirt is 500-10*10= 400

Suppose, all the consumer buys up to 10 shirts(the best case) profit scenario, then the total profit will be 400*(10-4) = $2400

So, the profit of Graphic Trees must be between $1680 and $2400 depending on the type of customers they are having.