Many times, the selling price of a product, p, is related to the demand, D, according to the relationship p=a-bD. However, a company has found that the price of their product can be related to demand ( in units per year) according to the following equation: p= $88.5 – (0.5)D0.5 . In addition, there is a fixed cost of $20,000 per year and the variable cost to manufacture the product is $20 per unit. a. What level of demand maximizes total revenue and the maximum revenue? b. What level of demand maximizes total profit for this product and the maximum profit?

Many times, the selling price of a product, p, is related to the demand, D, according to the relationship p=a-bD. However, a company has found that the price of their product can be related to demand ( in units per year) according to the following equation: p= $88.5 – (0.5)D0.5 . In addition, there is a fixed cost of $20,000 per year and the variable cost to manufacture the product is $20 per unit. a. What level of demand maximizes total revenue and the maximum revenue? b. What level of demand maximizes total profit for this product and the maximum profit?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter9: Applications Of Cost Theory

Section: Chapter Questions

Problem 3E

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