You are hired as a consultant at a revenue management firm and one of our recent clients wished to determine the optimum price for their consumer electronics product. The cost of the product is $100 and before retaining us, they had been selling the product at $200 because it felt like a nice round number. The current sales volume is 1000 units per year. We examined the market preferences and buying behavior, and concluded that this company’s marketplace has a price elasticity of 1 (i.e. Assume that an x% change in price will result in an x% change in sales volume for any x). What is the optimal price that maximizes total profit for this company? What are the sales volume, total revenue and total profit at the optimal price?
You are hired as a consultant at a revenue management firm and one of our
recent clients wished to determine the optimum
The cost of the product is $100 and before retaining us, they had been selling the product at
$200 because it felt like a nice round number. The current sales volume is 1000 units per
year. We examined the market preferences and buying behavior, and concluded that this
company’s marketplace has a price elasticity of 1 (i.e. Assume that an x% change in price
will result in an x% change in sales volume for any x). What is the optimal price that
maximizes total profit for this company? What are the sales volume, total revenue and total
profit at the optimal price?
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