Question

The gas station retail company you work for is in a price war with its competitors. None of you can compete on selection since you all sell the same product. You all keep lowering your prices on gasoline in order to drive up sales for your stores. Your boss comes in and says we should lower prices to $1.50 a gallon to really increase demand.

How many sales would you expect if the price drops to this level?

If this company’s gas stations can only support 1,450 customers a day, what is the lowest price that can be set in order to not drive customers away?

Y(# of sales)=1600-(75*price)

Answer 1

Here' the answer to the question. please write back in case you've doubts.

1.

Boss comes and says that the per gallon for gasoline is $1.50. If the price drops to this level then sales is :

Y(# of sales) = 1600 - 75*1.5 = 1487.5 customers

Answer: 1487.5 customers

2.

If we can support only 1450 customers per day then the sales vs. price equation becomes:

1450 = 1600 - 75*price

price = $(1600-1450)/75 = $2

So, If this company’s gas stations can only support 1,450 customers a day, the lowest price that can be set in order to not drive customers away is $2

Answer: $2