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Maximizing profit question

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Imagine that we are selling bottles of CocaCola in a vending machine. Currently, we charge $1.50 per bottle and have found through trial-and-error that if we raise the price by 1%, the quantity purchased will change by approximately -2% (...in other words, ?=2). If it will cost us approximately $0.75/bottle to supply more Coke to our customers, what should we do if our goal is to maximize profit?

Choose one answer.
a. Raise our price. Even though that means we will sell less soda, we'll get more per bottle, so our profits will rise.
b. Raise our price. We'll sell more soda and generate more profit.
c. Lower our price. Even though that means we will sell less soda, we'll get more per bottle, so our profits will rise.
d. Lower our price. We'll sell more soda and generate more profit.
e. Do nothing.
f. More information is needed to answer this question.

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Solution Preview

In this case, our increase in price was 1% and our change in demand was 2%. We didn't match an increase ...

Solution Summary

This solution explains what Coke should do if the goal is to maximize profit. The correct answer and explanation are provided.

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Profit Questions

1. Company A wants help setting its price or prices. It knows that 20 men and 10 women are potential customers and that each potential customer buys at most 1 unit of output. The 20 amounts men are willing to pay are $50, $49, $47, $46, $44, $43, ..., $23, $22. The 10 amounts women are willing to pay are $48, $45, $42, ..., $21. Average total cost equals $28.5 for all levels of output.
a. What price maximizes profit if the firm charges the same price to men and women? What is the maximum profit?
b. What price maximizes total revenue if the firm charges the same price to men and women? What is the maximum total revenue?
c. What prices maximizes profit if the firm charges the different prices to men and women? What is the maximum profit?
d. How many units does the firm sell if it engages in 1st degree price discrimination? What is the maximum profit?

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