Ella Ltd recently started to manufacture and sell product DG. The variable cost of product DG is £4 per unit and the total weekly fixed costs are £18,000. The company has set the initial selling price of product DG by adding a mark-up of 40% to its total unit cost. It has assumed that production and sales will be 3000 units per week. The company holds no stocks of product DG. 

Required 

1. Calculate for product DG: 

a. The initial selling price per unit; and 

b. The resultant weekly profit. 

The management accountant has established that a linear relationship between the unit selling price (P in £) and the weekly demand (Q in units) for product DG is given by: 

P = 20 - 0.002Q 

The marginal revenue (MR in £ per unit) is related to weekly demand (Q in units) by the equation:

 MR = 20 - 0.004Q

2. Calculate the selling price per unit for product DG that should be set in order to maximise weekly profit. 

3. Distinguish briefly between penetration and skimming pricing policies when launching a new product.