Testor Paints sells varnish with a variable cost of $6.50 per gallon.The company is unsure which price to charge in order to maximize profits.The price charged will also affect the demand. $$\begin{array} { c c }
\text { Gallons Dem anded } & \text { Unit Price Per Gallon } \
20,000 & \$ 11 \
30,000 & \$ 10 \
40,000 & \$ 9 \
50,000 & \$ 8
\end{array}$$ If fixed costs are $80,000 and the chart above represents the demand at various prices, what price should be charged in order to maximize profits?
A)$11
B)$10
C)$9
D)$8

Question

Testor Paints sells varnish with a variable cost of $6.50 per gallon.The company is unsure which price to charge in order to maximize profits.The price charged will also affect the demand. $$\begin{array} { c c } 
\text { Gallons Dem anded } & \text { Unit Price Per Gallon } \
20,000 & \$ 11 \
30,000 & \$ 10 \
40,000 & \$ 9 \
50,000 & \$ 8
\end{array}$$ If fixed costs are $80,000 and the chart above represents the demand at various prices, what price should be charged in order to maximize profits?
A)$11
B)$10
C)$9
D)$8

Quizplus · Accepted Answer

To maximize profits, calculate the profit for each price point: Profit = (Unit Price - Variable Cost) * Units Sold - Fixed Costs. For each price: A) $11: Profit = ($11 - $6.50) * 20,000 - $80,000 = $90,000 B) $10: Profit = ($10 - $6.50) * 30,000 - $80,000 = $105,000 C) $9: Profit = ($9 - $6.50) * 40,000 - $80,000 = $100,000 D) $8: Profit = ($8 - $6.50) * 50,000 - $80,000 = $75,000 The highest profit is at $10 per gallon.

Testor Paints Sells Varnish with a Variable Cost of $6