Question

You have developed a self-study certification system for those who need credit hours for recertification by your state’s social welfare office. The system operates at virtually no cost, i.e., there is no marginal cost. A marketing research team has assembled the following sales information. You are researching the options for pricing the courses. Your goal is to achieve maximum revenue to establish funding to maintain and update the system to reflect annual policy changes in licensing requirements. Complete the calculations for Total Revenue by determining how many customers will purchase at each of the segment prices.

Answer 1

Maximizing revenue involves understanding price elasticity of demand. For elastic demand, a price decrease can increase total revenue, while for inelastic demand, a price increase may do so. Perfect competition assumes more sales or higher prices increase total revenue.

Step-by-step explanation:

The key concept in thinking about collecting the most revenue is the price elasticity of demand. Total revenue is determined by multiplying the price by the quantity of items sold. For achieving maximum revenue, it is crucial to understand the relationship between price changes and how they affect the quantity demanded.

In scenarios where demand is elastic, decreasing the price can lead to a proportionally larger increase in quantity sold, thus increasing total revenue. Conversely, when demand is inelastic, increasing the price may lead to a smaller reduction in quantity sold which can also result in higher revenue. The case of unitary elasticity indicates that changes in price and quantity demanded do not affect total revenue as they offset each other.

For a perfectly competitive firm, increasing the quantity sold or the market price will lead to increased total revenue. An example provided is that of a farmer selling raspberries: if the price per pack increases, so does the revenue for each unit sold. Understanding and applying these principles can help in determining the most profitable number of units to produce and sell.