PRICING DECISION

QUESTION ONE

You have been informed by the company's marketing controller that the price/demand relation of one of the company's product is a linear function. It is further estimated that-the demand for the product would increase by 600 units for every decrease of TZS 1 in selling price and the vice versa. At the unit price ofTZS 1,600 per unit, demand is estimated to be 240,000 units.

The total cost function is given by TC = TZS, (400Q + 180,000,000) where TC is the total cost function and Q is quantity demand

Required:

(i)Compute the price and quantity when revenue is maximized and determine maximum revenue point,

(ii)Recommend the optimum price and quantity and compute the maximum profit, (iii) Explain why optimum pricing is difficult to achieve in practice.