A 20% increase in commodity price, from $50 to $60 per unit, boosts total revenue for a company selling 1,000 units monthly from $50,000 to $60,000.
When the price of a commodity rises by 20%, the total revenue for a company can be assessed through the formula: Total Revenue = Price per Unit × Quantity Sold. Initially, the company sells 1,000 units of the commodity at $50 per unit, resulting in a total revenue of $50,000 (Total Revenue = $50 × 1,000).
With the 20% price increase, the new price per unit becomes $60 (original price + 20% increase = $50 + 0.20 × $50 = $60). Now, the company continues to sell 1,000 units, and the new total revenue can be calculated as $60 × 1,000, resulting in $60,000.
Therefore, the impact of the 20% price increase on total revenue is an increase from $50,000 to $60,000. This change is attributed to the higher price per unit, which offsets any potential decrease in quantity sold. The company benefits from the price hike as long as the quantity sold remains constant or does not decline significantly. This analysis underscores the importance of considering both price and quantity changes when evaluating the overall impact on total revenue in response to shifts in commodity prices.
The probable question maybe:
"If the price of a commodity increases by 20%, how would this impact the total revenue for a company that sells 1,000 units of the commodity each month at the original price of $50 per unit?"