Question

A company estimates that it can sell 4, 000 units each month of its product if it prices each unit at $65. However, its monthly number of sales will increase by 5 units for each $0.10 decrease in price. The company has fixed costs of $500. The cost to make each unit is $4.40. Find the level of production that maximizes the company's profit. They should produce | units at a price of $ 1, which will yield a profit of $

Answer 1

Solution:

Level of Sales	Selling price	Variable cost per unit	Total Sales	Total variable cost	Fixed costs	Profit
4000	$65.00	$4.40	$260,000.00	$17,600.00	$500.00	$241,900.00
4005	$64.90	$4.40	$259,924.50	$17,622.00	$500.00	$241,802.50
4010	$64.80	$4.40	$259,848.00	$17,644.00	$500.00	$241,704.00
4015	$64.70	$4.40	$259,770.50	$17,666.00	$500.00	$241,604.50
4020	$64.60	$4.40	$259,692.00	$17,688.00	$500.00	$241,504.00

If you see above trend, the profit is decreasing for every 5 units increase in sales.

Therefore they should produce 4000 units at a price of $65 which will yield a profit of $241,900