Question

The marginal cost of Alexa's Guide to Street People and Their Pets is constant at $5. Alexa sells 5,000 copies per year at $20 per copy. She would like to increase readership and hold total profit constant. If the price goes to $15, how many copies must she sell?

Answer 1

Answer:

She must sell 7,500  copies to mantain the profits when price changes to $15.

Explanation:

• Let's start with a definition of profit or benefit: Benefit=$(Price-Cost)\times{Quantity}$

• At the beggining, she obtained a profit of $75,000: She sold 5,000 copies, and she got $20-$5=$15 dollars for each of the 5,000. units sold, which means a benefit of $15\times5,000=75,000$ dollars.
• Then, if she wants to keep the $75,000 profits when prices falls to $15, she must sell more copies:$75,000=(15-5)\times{NewQuantity}$. Then, the quantity she must sell to mantain the profit constant at $75,000 is New quantity=7,500.