Price Number of Subscribers (thousands) Cost of License Fees (thousands) Divisional Sales,General and Administrative Costs (thosands)...

Price	Number of Subscribers (thousands)	Cost of License Fees (thousands)	Divisional Sales,General and Administrative Costs (thosands)
$5.00	29.974	$134.883	$14.50
$5.50	29.256	$131.651	$14.50
$6.00	17.822	$80.199	$14.50
$6.50	22.657	$101.956	$14.50
$7.00	19.897	$89.537	$14.50
$7.50	16.671	$75.017	$14.50
$8.00	20.492	$92.213	$14.50
$9.00	19.760	$88.920	$14.50
$9.50	17.123	$77.053	$14.50
$10.00	12.644	$56.896	$14.50
$10.50	12.785	$57.531	$14.50
$11.00	12.216	$54.974	$14.50
$11.50	13.246	$59.608	$14.50
$12.00	8.637	$38.867	$14.50
$12.50	10.595	$47.678	$14.50
$13.00	5.857	$26.357	$14.50
$13.50	2.615	$11.768	$14.50
$14.00	2.739	$12.326	$14.50
$14.50	5.291	$23.809	$14.50
$15.00	3.051	$13.730	$14.50

Please provide a recommendation of the profit-maximizing price, and how much our profits will increase if we adjust price to the recommended level. Also, please not whether this will impact our revenue.

Use the Profit Maximization rule to find the profit-maximizing price and profit. Consider the cost data is all implicit and explicit data included. Use the cost structure to figure out any type of cost you need.

Solutions

Expert Solution

Profit maximizing occurs when Marginal revenue equals Marginal cost.

Revenue equals (price*no of customers).

Total costs = cost of licence + divisional sales.

Total Revenue	Marginal Revenue	Total cost	Marginal cost
149.87	-	149.383	-
160.91	11.04	146.15	-3.23
106.932	-53.98	94.7	-51.45
147.27	40.34	116.46	21.76
139.28	-7.99	104.04	-12.42
125.03	-14.25	89.52	-14.52
163.94	38.91	106.71	17.19
177.84	13.9	103.42	-3.29
162.67	-15.17	91.55	-11.87
126.44	-36.23	71.4	-20.15
134.24	7.8	72.03	0.63
134.38	0.14	69.47	-2.56
152.33	17.95	74.11	4.64
103.64	-48.69	53.37	-20.74
132.44	28.8	62.18	8.81
76.14	-56.3	40.86	-21.32
35.30	-40.84	26.27	-14.59
38.346	3.05	26.83	0.57
76.72	38.37	38.31	11.48
45.76	-30.96	28.23	-10.08

Analyzing the table, we get the profit maximizing production occurs when MR is close to MC. which happens to be when number of subscribers equals 16671.

Total profit at this point = 125.03 - 89.52= 35.51

Which is $35.51×1000= $35,510

Hope this helps. Do hit the thumbs up. Cheers!

Rahul Sunny answered 1 year ago

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