For most products, higher prices result in a decreased demand, whereas lower pri
ID: 1147940 • Letter: F
Question
For most products, higher prices result in a decreased demand, whereas lower prices result in an increased demand (economists refer to such products as normal& 11. oods). Let d = annual demand for a product in units p = price per unit Assume that a firm accepts the following price-demand relationship as being a real- istic representation of its market: d = 800-10p where p must be between $20 and $70. a. How many units can the firm sell at the $20 per-unit price? At the $70 per-unit price? b. What happens to annual units demanded for the product if the firm increases the per unit price from $26 to $27? From $42 to $43? From $68 to $69? What is the suggested c. Show the mathematical model for the total revenue (TR), which is the annual demand d. Based on other considerations, the firm's management will only consider price al- e. What are the expected annual demand and the total revenue according to your recom relationship between per-unit price and annual demand for the product in units? multiplied by the unit price. ternatives of $30, $40, and $50. Use your model from part (b) to determine the price alternative that will maximize the total revenue. mended price?Explanation / Answer
a. at p=20, d = 600, at p= 70 d = 100
b.
The suggested relation is d=800-10*p
c. TR=q*p = 800p-10p^2
d. With the increase in price by 1 unit, quantity decreases by 10 units
at p= 40 and d = 400, the total revenue gets maximum
e. The expected annual demand is 400 units and TR is $16000
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