Knoll,Inc.currently sells 15,000 units a month for $50 each,has variable costs of $20 per unit,and fixed costs of $300,000.Knoll is considering increasing the price of its units to $60 per unit.This will not affect costs,but demand is expected to drop 20%.Should Knoll increase the price of its product?
A)Yes;profit will increase $30,000.
B)Yes,profit will increase $150,000.
C)No,profit will decrease $150,000.
D)No,profit will decrease $30,000.

Question

Quizplus · Accepted Answer

Currently, Knoll's monthly revenue is 15,000 units * $50 = $750,000. The variable costs are 15,000 units * $20 = $300,000. So, the current profit is $750,000 - $300,000 - $300,000 (fixed costs) = $150,000. If the price increases to $60, demand drops to 80% of 15,000 units = 12,000 units. New revenue is 12,000 units * $60 = $720,000. New variable costs are 12,000 units * $20 = $240,000. New profit is $720,000 - $240,000 - $300,000 = $180,000. The increase in profit is $180,000 - $150,000 = $30,000.

Knoll,IncCurrently Sells 15,000 Units a Month for $50 Each,has Variable