Question

Champ cycle currently sells 40 motorcycles a week at a price of $7000 each. the sales department wants to increase the price but the marketing department currently predicts that for every $500 increase sales will fall by two motorcycles. What price will maximize the revenue

Answer 1

To maximize revenue, the price should be increased to $7500.

Step-by-step explanation:

To determine the price that will maximize revenue, we need to consider the relationship between price, sales, and revenue. Since the sales department predicts that for every $500 increase in price, sales will fall by two motorcycles, we can calculate the revenue for each price point.

Let's start with the given scenario: currently selling 40 motorcycles a week at $7000 each. The revenue at this price point is calculated as:

Revenue = Price x Quantity = $7000 x 40 = $280,000

Now, let's calculate the revenue for a higher price point, such as $7500:

Quantity = 40 - (increase in price/500 x decrease in sales) = 40 - (500/500 x 2) = 40 - 2 = 38

Revenue = Price x Quantity = $7500 x 38 = $285,000

We can repeat this calculation for different price points to find the one that maximizes revenue. Based on these calculations, it seems that increasing the price to $7500 will maximize revenue.