Linear Price Function

Manufacturing components (e.g., screws, electronics, chips) or raw materials (such as bricks used in construction) typically exhibit a linear relationship between price and demand. 

Assume a fixed cost of $1,000,000.00 and a variable cost of $25.00 per unit. 

Questions

1. 1. Calculate the (1) demand that maximizes revenue and profit, (2) maximum revenue and profit, and (3) breakeven points.

   2. Using MS Excel, develop graphs for cost, revenue, and profit, as well as unit price (on a secondary Y-axis). Plot these over a range of demand values, starting from zero and extending beyond the breakeven points.

Solution Using Formulas

Solution Using MS Excel

Figure 2-8 shows the solution using MS Excel.

While the solution using calculus provides a single optimum point for price, demand, cost, revenue, and profit, solving the problem using Microsoft Excel offers even deeper insights, including how cost, revenue, and profit change over a wide range of demand values. As the calculus solution indicates that no real maximum revenue exists for this problem, a better visual can be seen through the graphs developed by the MS Excel solution.