Maximizing RevenuePart I The marketing department at Gadgets Galore has found th
ID: 3198372 • Letter: M
Question
Maximizing RevenuePart I The marketing department at Gadgets Galore has found that when certain iPods are sold at a prie of ? dollars per urnit, the revenue Rin dollars) as a function of the price p ca be derionstrated by the unction given in the graph below 800000- 00000- 600000- 0000-+ 400000 20 0 60 80100 120 1401 Use the above graph to answer the questions stated in Part I af the Response Sheet PART: Maximizing Revenue (Quantitative Literacy) 1. Interpretation: Using complete sentences, explain the infomation represented by the graph. Place cursor here to begin typing your response. 2. Represeniatin and Calcufafions: Find the approximate revenue when the price af the tem is Place cursor on the line to type your rasponse. a. p $20 b.?$40 C. F$60 R- R- e 100R- 3. Applicafion and analysis: Make a judgment and draw appropriate conclusians based on the quantitative analysis of the data represented in the given graph. (Hint: Does the data lead you to the maximum point on the graph? How does knowing this projected maximum point help this company?) Write at least two or three sentences to explairn your answer Place cursor here to begin typing your response. 4. Assunptions: What assumptions did you make in your estimate of the maximum revenue and the needed price to charge to reach this maximum revenue? (Hint: When looking at the graph, what did you assume about the data shown?) Write at least two or three sentences to explain your answer Place cursar here to begin typing your response.Explanation / Answer
1. The graph gives information about the relation between total revenues and the price that a firm charges for a product. It shows that initially as price increases, total revenues rise till it reaches its maximum point after which the total revenues fall for every increase in price.
2. a) P= $20, R = $350000 b) P=$40, R= $600000 c) P=$60, R= $750000 d) P=$80, R= $750000
e) P=$100, R= $600000 f) P=$120, R= $350000
3. From the above quantitative analysis we can find out the the price at which total revenue is the maximum. From the analysis it can be seen that the total revenue is maximum at a price between $60 and $80. This can help the firm determine the price of the product. It can also find out the profits at each price by adding the cost curve to the graph and subtracting it from the total revenue function.
4. The main assumption that is taken when calculating this graph is that all other factors are held constant. For example, incomes of people, elasticity of goods, advertising expenditure etc, all of which can influence the demand are held constant and only the price changes.