Cobb Douglas Company currently sells 40,000 feet of cable each month for $3.50 per foot. The variable cost of the cable is $0.95 per foot, and monthly fixed costs are $75,000. The company is considering whether to raise the sales price for the cable to $4.00 per foot. The marketing team has determined that such an increase in sales price

Chapter 21, Practice Exercises #18

Cobb Douglas Company currently sells 40,000 feet of cable each month for $3.50 per foot. The variable cost of the cable is $0.95 per foot, and monthly fixed costs are $75,000. The company is considering whether to raise the sales price for the cable to $4.00 per foot. The marketing team has determined that such an increase in sales price will discourage some customers from purchasing the cable, so the company will be able to sell only 35,000 feet of cable per month. Calculate the profit for the company under both of the following scenarios:

1. 40,000 feet of cable at $3.50 per foot

2. 35,000 feet of cable at $4.00 per foot

In terms of profit maximization, should the company raise the price per foot?


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Accounting concepts and applications

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ISBN: 978-0538745482