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The editor of Golden magazine is considering three alternative prices for her new monthly periodical
The editor of Golden magazine is considering three alternative prices for her new monthly periodical. Her estimate of price and quantity demanded are:
Price Quantity Demanded
$7.92 24,000
$6.99 32,000
$5.89 36,800
Monthly costs of producing and delivering the magazine include $94,900 of fixed costs and variable costs of $2.30 per issue.
Which price will yield the largest monthly profit? (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
Price Profit/(loss)
$7.92 $
$6.99 $
$5.89 $
enter a dollar amount
A price of $ yields the largest monthly profit.
enter the largest monthly profit amount in dollars rounded to 2 decimal places.
Expert Solution
Computation of Monthly Profit:
| Price = $7.92 | Price = $6.99 | Price = $5.89 | |
| Selling Price per unit | 7.92 | 6.99 | 5.89 |
| Less : Variable Cost per unit | 2.3 | 2.3 | 2.3 |
| Contribution per unit (a) | 5.62 | 4.69 | 3.59 |
| Quantity Demanded (b) | 24000 | 32000 | 36800 |
| Total Contribution (a*b) | 134880 | 150080 | 132112 |
| Less: Fixed Cost | 94900 | 94900 | 94900 |
| Monthly Profit | 39980 | 55180 | 37212 |
A price of $6.99 yields the largest monthly profit.
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