Calculating the price which is charged by firm

Reference no: EM1316390

Acme Electronics manufactures high-quality CD players and sells them only to retailers. The monthly demand for CD players at a typical retail outlet is given by

P = 400 -Q

(Letting P represent the retail price and Q the quantity demanded)

a. If Acme's wholesale price to retailers is $200 per unit, calculate (1) the price retailers will charge and (2) Acme's monthly revenues (not the retailer's). Assume that, except for the cost of the CD players, all of the retailer's costs are fixed and that the retailer wishes to maximize profit.

b. Suppose Acme decides that instead of cutting the wholesale price of the CD players it will offer a $50 rebate to the consumer (that is, the wholesale price is $200. Assuming that the rebate program imposes no cost on the retailer and that every consumer takes advantage of the rebate) calculate the retail price paid by the consumer at the store (that is, not net of the rebate), the quantity sold and the revenues earned by Acme (both the gross amount and revenues after paying the rebate). (Note: the question is not as tricky as it might seem. Just make a distinction between the price charged by the retailer and the after-rebate price paid by the consumer. In doing so remember that the demand function given above describes the relationship between the prices the consumer pays and the amount demanded.

Reference no: EM1316390

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