Rosetone Retail sells one product with a variable cost of $3.50 per unit.The demand at different prices to be charged is shown below: $$\begin{array} { c c }
\text { Units Dem anded } &\text { Unit Price } \
10,000 & \$ 9 \
15,000 & \$ 8 \
20,000 & \$ 7 \
25,000 & \$ 6
\end{array}$$ If fixed costs are $42,000, what price should Rosetone charge in order to maximize profits?
A)$9
B)$8
C)$7
D)$6

Question

Rosetone Retail sells one product with a variable cost of $3.50 per unit.The demand at different prices to be charged is shown below: $$\begin{array} { c c } 
\text { Units Dem anded } &\text { Unit Price }  \
10,000 & \$ 9 \
15,000 & \$ 8 \
20,000 & \$ 7 \
25,000 & \$ 6
\end{array}$$ If fixed costs are $42,000, what price should Rosetone charge in order to maximize profits?
A)$9
B)$8
C)$7
D)$6

Quizplus · Accepted Answer

To maximize profits, we calculate the profit for each price point. Profit = (Unit Price - Variable Cost) * Units Demanded - Fixed Costs. For each price:- At $9: Profit = ($9 - $3.50) * 10,000 - $42,000 = $55,000 - $42,000 = $13,000- At $8: Profit = ($8 - $3.50) * 15,000 - $42,000 = $67,500 - $42,000 = $25,500- At $7: Profit = ($7 - $3.50) * 20,000 - $42,000 = $70,000 - $42,000 = $28,000- At $6: Profit = ($6 - $3.50) * 25,000 - $42,000 = $62,500 - $42,000 = $20,500The maximum profit of $28,000 is achieved at a price of $7.

Rosetone Retail Sells One Product with a Variable Cost of $3.50