Hardley sells mamburgers. He faces fixed costs of $18,000 per month and variable production and marketing costs

Hardley sells mamburgers. He faces fixed costs of $18,000 per month and variable production and marketing costs of $2 per mamburger. Market research has developed the following demand schedule. Which price/volume combination should Yardley choose?

A. Price: $12; Quantity: 4,000

B. Price: $10; Quantity: 5,500

C. Price: $8; Quantity: 7,000

D. Price: $6; Quantity: 9,000

E. Unable to determine

Solutions

Expert Solution

Correct Answer is option B = price $10, Quantity 5,500

Price	Quantity	Sales revenue	variable costs	Fixed costs	Net profit
$ 12	4000	$ 48,000	$ 8,000	$ 18,000	$ 22,000
$ 10	5500	$ 55,000	$ 11,000	$ 18,000	$ 26,000
$ 8	7000	$ 56,000	$ 14,000	$ 18,000	$ 24,000
$ 6	9000	$ 54,000	$ 18,000	$ 18,000	$ 18,000

Based on above table, it is evident that price $10, Quantity 5500 had highest profit.

Correct Answer is option B = price $10, Quantity 5,500

Ramesh R answered 3 years ago

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