Question

A company estimates that it can sell 5,000 headphone each week if it prices each set of headphones at $20. However, its weekly number of sales will increase by 1000 units for each $1 decrease in price. At what price is revenue maximum? What is the maximum revenue and how many sets of headphones should the company expect to sell? Write your conclusions in a sentence.

Answer 1

Answer:

At what price is revenue maximum?

• $13 and $12 per unit (maximum revenue $156,000)

What is the maximum revenue and how many sets of headphones should the company expect to sell?

• $156,000

Write your conclusions in a sentence.

• When the price is higher than $12 per unit, demand is elastic, which means any decrease in price will result in a larger proportional increase in quantity demanded. This in turn increases total revenue. Below $12 per unit, demand is inelastic, which means that a decrease in price will result in a smaller increase in quantity demanded.

Explanation:

price            quantity demanded       total revenue

$20                            5000               $100000

$19                            6000               $114000

$18                      7000                 $126000

$17                      8000                 $136000

$16                      9000               $144000

$15                      10000               $150000

$14                      11000               $154000

$13                      12000               $156000

$12                      13000               $156000

$11                             14000               $154000

$10                      15000               $150000

$9                      16000               $144000

$8                      17000               $136000

$7                      18000               $126000

$6                      19000               $114000

$5                      20000       $100000

$4                       21000        $84000

3                       22000        $66000

2                       23000        $46000

1                       24000        $24000