Question

When e-Bikes Company sells bikes at $500 a piece, they sell 30 of them per month. For every $20 increase in price, the number of bikes sold decreases by 5. Assume that the fixed production costs are $4000 and the variable costs are $250 per bike produced.

(a) Assuming the price-demand relationship is linear, describe the price-demand curve.

(b) What is the cost function in terms of demand? What is the revenue function in terms of demand?

(c) What is the price elasticity of demand when price is $550?

(d)At what price is the revenue maximized? Maximize revenue directly. Don’t use elasticity of demand to find this price because it does not take into account the cost function.

Answer 1