Assume that you have taken over management of a small concession stand on a local beach for the summer. Your main product is iced water, popular on hot days. You’ve been selling 400 cups per day at 50 cents each. The cups cost 5 cents each. One of your customers suggests that you cut the price to 40 cents to make more money. For the customer to be correct, how much must your sales increase?
What will be an ideal response?
The original profit was 50Q ? 5Q = 45Q. The new profit is 40QN? 5QN = 35QN where QN is the new level of output. The level of output where the profit is the same at either price is determined by 45Q = 35QN. QN = 45Q/35 = 514.287. Therefore, the sales must increase by at least 115 cups per day.
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