Chapter CS, Problem 1CBE

To determine

To explain: The revenue will increase or not.

Answer to Problem 1CBE

Yes the revenue will be increased.

Explanation of Solution

Consider the profit formula,

  $\text{Profit}=\text{TR}-\text{TC}$

Where,

  $\begin{array}{l}\text{TR}=\text{Price}\times \text{number of subscriber}\\ \text{TC}=\text{Cost}\text{license}\text{fee}+\text{general}\text{administrative}\text{and}\text{divisional}\text{cost}\end{array}$

Now, consider the table shown below,

Price	No. of Subscribers	Cost of license fees	Divisional, general and adm costs	TR	TC	Profit
5	29.974	134.883	14.5	149.87	149.383	0.487
6.5	22.657	101.956	14.5	147.2705	116.456	30.8145
7	19.897	89.537	14.5	139.279	104.037	35.242
7.5	16.671	75.017	14.5	125.0325	89.517	35.5155
8	20.492	92.213	14.5	163.936	106.713	57.223
8.5	20	89.998	14.5	170	104.498	65.502
9	19.76	88.92	14.5	177.84	103.42	74.42
9.5	17.123	77.053	14.5	162.6685	91.553	71.1155
10	12.643	56.896	14.5	126.43	71.396	55.034
10.5	12.785	57.532	14.5	134.2425	72.032	62.2105
11	12.216	54.974	14.5	134.376	69.474	64.902
11.5	13.246	59.608	14.5	152.329	74.108	78.221
12	8.637	38.867	14.5	103.644	53.367	50.277
12.5	10.595	47.78	14.5	132.4375	62.28	70.1575
14	2.739	12.326	14.5	38.346	26.826	11.52
14.5	5.291	23.809	14.5	76.7195	38.309	38.4105
15	3.051	13.73	14.5	45.765	28.23	17.535

Figure-1

Consider figure-1, the profit is maximized at Price of $\$11.5$ . So, the recommended price is $\$11.5$ . By adjusting price to this level, the profit will be $\$78221$ and the total revenue will be $\$152329$ . Therefore, Yes the revenue will be increased.

Economics Concept Introduction

The profit is obtained by subtracting the product of price and number of subscribers with the total cost.

  $\text{Profit}=\text{TR}-\text{TC}$