Question

Max and Maddy charge people to park on their lawn while attending a nearby craft fair. At the current price of $10, seven people park on their lawn. If they raise the price to $15, they know that only five people will want to park on their lawn. Whether they have seven or five cars parked on their lawn does not affect their costs. From this information it follows that:

Answer 1

Answer:

The question is incomplete, find the  complete one below:

Max and Maddy charge people to park on their lawn while attending a nearby craft fair.  At the current price of $10, seven people park on their lawn.  If they raise the price to $15, they know that only five people will want to park on their lawn.  Whether they have seven or five cars parked on their lawn does not affect their costs.  From this information it follows that

a.they should leave the price at $10.

b.it does not matter if they charge $10 or $15.

c.they would do better charging $15 than $10.

d.they should raise the price even more.

Answer:

c.they would do better charging $15 than $10.

Explanation:

Every commercial business is out to maximize profit. Profit is defined as  total revenue minus total cost

Total revenue= Price × quantity/customer sold/served

At the current price of $10,

Revenue = $10 × 7 = $70

At the proposed price of $15

Revenue= $15 × 5 = $75

Total cost is sum of fixed cost and total variable cost

Fixed costs are those that remain unchanged within a given level of activity. In this question, their cost is fixed.

Additional revenue/profit to be made if the proposed price is adopted =

$75-$70= $5