Question

A company estimates that it can sell 5,000 headphone each week if it prices each set of headphones at $20. However, its weekly number of sales will increase by 1000 units for each $1 decrease in price. At what price is revenue maximum? What is the maximum revenue and how many sets of headphones should the company expect to sell? Write your conclusions in a sentence.

Answer 1

At what price is revenue maximum?

• $13 and $12 per unit (maximum revenue $156,000)

What is the maximum revenue and how many sets of headphones should the company expect to sell?

• $156,000

Write your conclusions in a sentence.

• When the price is higher than $12 per unit, demand is elastic, which means any decrease in price will result in a larger proportional increase in quantity demanded. This in turn increases total revenue. Below $12 per unit, demand is inelastic, which means that a decrease in price will result in a smaller increase in quantity demanded.

Step-by-step explanation:

price quantity demanded total revenue

$20 5000 $100000

$19 6000 $114000

$18 7000 $126000

$17 8000 $136000

$16 9000 $144000

$15 10000 $150000

$14 11000 $154000

$13 12000 $156000

$12 13000 $156000

$11 14000 $154000

$10 15000 $150000

$9 16000 $144000

$8 17000 $136000

$7 18000 $126000

$6 19000 $114000

$5 20000 $100000

$4 21000 $84000

3 22000 $66000

2 23000 $46000

1 24000 $24000