Explore BrainMass
Share

Explore BrainMass

    Finding the optimal price and output combination

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    A television station is considering the sale of promotional DVDs. It can have the DVDs produced by one of two suppliers. Supplier A will charge the station a set-up fee of $1,200 plus $2 for each DVD; supplier B has the no set-up fee and will charge $4 per DVD. The station estimates its demand for the DVDs to be given by Q = 1,600 - 200P, where P is the price in dollars and Q is the number of DVDs. (The price equation is P = 8 - Q / 200).

    a. Suppose the station plans to give away the videos. How many DVDs should it order? From which supplier?
    b. Suppose instead that the stations seek to maximize its profits from sales of the DVDs. What price should it charge? How many DVDs should it order from which supplier?

    © BrainMass Inc. brainmass.com October 10, 2019, 5:28 am ad1c9bdddf
    https://brainmass.com/business/business-management/finding-the-optimal-price-and-output-combination-506442

    Solution Preview

    a. Suppose the station plans to give away the videos. How many DVDs should it order? From which supplier?

    Q=1600-200P
    Let us calculate the number of DVDs needed at nil price i.e. P=0
    Q=1600-200*0=1600
    He should order 1600 DVDs.

    Suppose he orders from Supplier A,
    Total cost=1200+2*1600=$4400

    Suppose he orders from Supplier B,
    Total cost=4*1600=$6400

    Cost of ordering ...

    Solution Summary

    It is very important to choose an optimal price and output combination in the day to day business. Solution to given problem depict the steps to determine the optimal price and output combination with the help of given equation.

    $2.19