ACCA PM · Chapter 7 · Question 4 of 10
Phi Co currently sells 2,000 units of a product per month at $100 each. Market research shows that for every $5 increase in price, demand falls by 100 units (and vice versa). The variable cost is $40 per unit and fixed costs are unaffected by volume. What is the maximum monthly contribution that can be earned?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) $128,000
Explanation
Optimal output is 1,600 units at $120 (where MR = MC). Contribution = ($120 - $40) x 1,600 = $128,000, compared with $120,000 at the current price.
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