Calculate the profit maximizing price

Reference no: EM133711032

Question: You typically sell the 36-packs for $15 and sell an average of 4,000 per month. You decide to raise the price to $18 per 36-pack. When you do this your monthly sales fall to 3,200. Assuming that your firm's demand function is linear (i.e., takes the form Q(P)=a-bP), calculate the linear demand function b=380/3=266.67 and a=8000 so therefore the linear demand function is = Q(P)=8000-266.67P The marginal cost (MC) of producing your product is $8 Calculate the markups at the two prices ($15 and $18) from question 1 above Note: Use the formula for Lerner's Index (Markup on Price) to calculate the markup Formula is: Markup=(price-MC)/price. Pg 94 @$15= L= (15-8)/15 Markup at $15 is .4667 or 46.67% @$18= L= (18-8)/18 Markup at $15 is .5556 or 55.56.% Profit Maximization Use the estimated demand function that you calculated in question 1 and the cost function below to work out the profit maximizing price. TC(Q)=$1,500 $8Q Calculate the profit maximizing quantity Calculate the profit maximizing price Calculate profits at the profit maximizing price and quantity Use the estimated demand function to calculate the point price elasticity of demand at the profit maximizing price and quantity.

Reference no: EM133711032

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