The commodity that your company produces is price sensitive, i.e., the number of units that you can
Question:
The commodity that your company produces is price sensitive, i.e., the number of units that you can sell depends upon the price. Suppose that a rough examination of past data and experience suggests that the functional relationship between the selling price charged ($/unit) and the number of units actually sold (Q) is given as follows:
Q = (Base Sales) - (Price Elasticity) * (Selling Price)
After the company invested $20,000 in advertising (part of cost), a detailed statistical analysis of past data shows that Base Sales is best approximated by 200,000, and the Price Elasticity is approximately 40,000 units per dollar. Further, suppose that the technology used to produce these parts is such that its cost structure consists of a fixed component and a variable component. In fact, for any production run, besides the advertising cost, there is another fixed cost of $15,000 and a variable cost of $3 per unit produced.
It is your job to determine the best pricing and production strategy for your company.
Please select the correct profit function: Group of answer choices −40,000P2 + 320,000P - 615,000 −40,000P2 + 320,000P - 620,000 −40,000P2 + 300,000P - 615,000 −40,000P2 + 320,000P - 635,000
Expert Answer:
