ACCA PM · Chapter 7 · Question 10 of 10
Chi Co sells 12,000 units per month of a product at $60 each. Each $2 reduction in price would increase demand by 800 units per month. The variable cost is $20 per unit. What is the profit-maximising price?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) $55
Explanation
b = $2 / 800 = 0.0025. a = 60 + (0.0025 x 12,000) = 90, so P = 90 - 0.0025Q and MR = 90 - 0.005Q. Setting MR = MC: 90 - 0.005Q = 20 gives Q = 14,000. Price = 90 - (0.0025 x 14,000) = $55.
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