Demand and Profit In order to generate a profit from its new o’Tunes service, OHaganBooks.com needs to know how the demand for music albums depends on the price it charges. During the first week of the service, it was charging $7 per album, and sold 500. Raising the price to $9.50 had the effect of lowering demand to 300 albums per week.
a. Use the given data to construct a linear demand equation.
b. Use the demand equation you constructed in part (a) to estimate the demand if the price was raised to $12 per album.
c. Using the information on cost given in Exercise 39, determine which of the three prices ($7, $9.50 and $12) would result in the largest weekly profit, and the size of that profit.
Reference:
Break-Even Analysis OHaganBooks.com has recently decided to start selling music albums online through a service it calls o’Tunes.75 Users pay a fee to download an entire music album. Composer royalties and copyright fees cost an average of $5.50 per album, and the cost of operating and maintaining o’Tunes amounts to $500 per week. The company is currently charging customers $9.50 per album.
a. What are the associated (weekly) cost, revenue, and profit functions?
b. How many albums must be sold per week in order to make a profit?
c. If the charge is lowered to $8.00 per album, how many albums must be sold per week in order to make a profit?
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