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Peter s Pots Inc. was in the wholesale business of selling

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Peter s Pots Inc. was in the wholesale business of selling [#permalink] New post 01 Feb 2007, 17:01
Peter’s Pots Inc. was in the wholesale business of selling pots for non seasonal plants. The following info is given about the company:

sales $13,600
profit $1088
volume sold 6800

With respect to pricing, a two percent decrease in the retail price of pots would result in a four percent increase in the volume sold. Similarly, a two percent increase in the price would cause a four percent decrease in the volume sold. At what price per pot would the firm maximize profit?
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 [#permalink] New post 02 Feb 2007, 16:43
Profit = Sales - Cost

1088 = 13,600 - Cost

Cost = 13,600 - 1,088 = 12,512

Cost/pot = 12,512/6,800 = 1.84 {the cost of production will not change}
Profit/pot = 1,088/6,800 = 0.16
Sales/pot = 13,600/6,800 = 2

Case 1:
2% decrese Sales/pot (0.98 x 2 = 1.96) will make 4% increase in the volume sold (1.04 x 6,800 = 7,072)

Proft 2 = 7,072(1.96 - 1.84) = $848.64

Case 2:
2% increase Sales/pot (1.02 x 2 = 2.04) will make 4% decrease in the volume sold (0.96 x 6,800 = 6,528)

Profit 3 = 6,528(2.04 - 1.84) = $1,305.6


From this we can see that at Retail price increase 2% = $2.04 will generate the maximum profit.
  [#permalink] 02 Feb 2007, 16:43
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Peter s Pots Inc. was in the wholesale business of selling

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