ACCA PM · Chapter 7 · Question 3 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 profit-maximising selling price?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $120
Explanation
Demand: P = 200 - 0.05Q, so MR = 200 - 0.1Q. Profit is maximised where MR = MC: 200 - 0.1Q = 40, giving Q = 1,600. Price = 200 - (0.05 x 1,600) = $120.
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