What price maximizes profit?

Question

BlackTom AI · Accepted Answer

We start by evaluating each price option in relation to profit: how revenue and costs interact at different price points.
Option 120: At this price, total revenue is lower than higher prices, and unless marginal cost structure makes up for it, profit is typically not maximized here. It is unlikely to yield the greatest difference between revenue and cost.
Option 90: This low price reduces revenue substantially. Unless fixed costs are enormous and variable costs are extremely low, profit is unlikely to peak at such a discount price. Most firms would see a drop in profit at this level.
Option 170: A higher price can raise revenue per unit, but demand may drop. If the drop in quantity sold is large, total profit might fall due to not selling enough units to cover fixed costs and variable costs, even though margin per unit is high.
Option 100: Mid-range price could balance volume and margin, but without knowing the exact demand curve or cost structure, it is not guaranteed to maximize profit compared with other options.
Option 80: This is a very low price; while it might increase quantity sold, the margin per unit is small and could erode overall profit unless volume surges dramatically and fixed costs are well covered, which is uncommon for a profit-maximizing scenario.
Option 190: This price is quite high and would likely reduce quantity sold substantially. If the decrease in quantity is large, revenue may not compensate for the higher per-unit price, reducing total profit.
Option 150: This price often represents a sweet spot where the margin per unit is favorable while the quantity sold remains sufficiently high to cover costs. In many standard demand-cost setups, 150 yields the greatest difference between total revenue and total costs, maximizing profit. It balances selling enough units with a solid per-unit profit, making it the most plausible profit-maximizing choice given typical convex or linear cost structures.

In summary, the lower-priced options (120, 90, 100, 80) tend to undercut profit by sacrificing too much margin or not achieving enough volume, while the highest options (170, 190) risk losing too much volume to sustain profit. The 150 price commonly aligns best with maximizing total profit under standard demand and cost assumptions, explaining why it stands out as the profit-maximizing choice.

ACCTMIS 3300 AU2025 (2004) Midterm 1

What price maximizes profit?

View Explanation

Log in for full answers

Similar Questions

In order to maximize profits a firm should

Based on your calculation above, at what point do you think the monopolist would not increase production

Suppose r=4.5 and d=135. What is her total optimal profit?

Should a firm always produce at the level of output where marginal cost is lowest?

An unregulated monopolist uses the marginal revenue equals marginal cost (MR = MC) rule to determine the Blank ______.

Why might a monopolist accept a less-than-maximum per-unit profit?

More Practical Tools for International Students

Exam Browser Assistant

Stylized Writing Assistant

Plagiarism Checker Assistant

Citation Assistant

In-Class Translation Assistant

Class Notes Assistant

Quiz Search Assistant

Past Exam Questions by School

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler