revenue = price * demand
If there are x price decreases, then
price: p(x) = 5.00 - .20x
demand: d(x) = 200 + 5x
so, x = (d-200)/5
r(x) = p(x)*d(x)
= (5 - x/5)(200+5x)
= (5 - (d-200)/25)d
= 13d - d^2/25
marginal revenue for demand is thus
dr/dd = 13 - 2d/25
r'(120) = 13 - 240/25 = 17/5 = $2.40
So, at a demand level of 120, higher demand (lowering the price some more) will increase revenue.
A nut store sells 200 bags of almonds per month at a price of $5 per bag. For every $0.20 decrease in the price, the store sells five more bags per month. Determine the marginal revenue when 120 bags are sold.
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