Page 394 - PM Integrated Workbook 2018-19

Chapter 15

Step 4: Forecast the demand at a given selling price

At a price of $300

300 = 600 – 0.4Q

0.4Q = 300

Q = 300/0.4

Quantity demanded (Q) = 750 units per month

(b) Using the price equation in (a) and assuming the variable cost per unit is
$100, calculate the optimum price and output.

MR = 600 – 0.8Q

MC = VC so equating MR = MC: 100 = 600 – 0.8Q

Therefore (100 – 600) = – 0.8 Q

Therefore 500 = 0.8 Q

Therefore Q = 500/0.8

So Q = 625

And substituting Q into Price function, P = $350

(c) Calculate the maximum contribution

Contribution per unit = $350 $100 = $250

Total contribution = $250 × 625 units = $156,250

386