Cobb Douglas Company currently sells 40,000 feet of cable each month for $3.50 per foot. The variable
Question:
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?
Step by Step Answer:
Accounting concepts and applications
ISBN: 978-0538745482
11th Edition
Authors: Albrecht Stice, Stice Swain