Reference no: EM132513392

The commodity that your company produces is price sensitive, i.e., the number of units that you can sell depends upon the price. Suppose that a rough examination of past data and experience suggests that the functional relationship between the selling price charged ($/unit) and the number of units actually sold (Q) is given as follows:

Q = (Base Sales) - (Price Elasticity) * (Selling Price)

• After the company invested $20,000 in advertising (part of cost), a detailed statistical analysis of past data shows that Base Sales is best approximated by 200,000, and the Price Elasticity is approximately 40,000 units per dollar.

• Further, suppose that the technology used to produce these parts is such that its cost structure consists of a fixed component and a variable component. In fact, for any production run, besides the advertising cost, there is another fixed cost of $15,000 and a variable cost of $3 per unit produced.

Question 1: It is your job to determine the best pricing and production strategy for your company.

Please select the correct profit function:

Group of answer choices

Option 1: -40,000P2 + 320,000P - 615,000

Option 2: -40,000P2 + 320,000P - 620,000

Option 3: -40,000P2 + 300,000P - 615,000

Option 4: -40,000P2 + 320,000P - 635,000