Maker Sun Chairs is trying to determine the optimal price to charge for its galvanized deck chairs. The company has total fixed costs of $120,000 and the deck chairs have a unit variable cost of $27.00 per unit. Maker Sun Chairs has determined that the following relationships exist between price and demand: $$\begin{array} { c c }
\text { Unit Price } & \text { Unit Demand } \
\$ 45 & 7,200 \
\$ 44 & 7,800 \
\$ 43 & 8,400 \
\$ 42 & 8,800
\end{array}$$ What price should Maker Sun Chairs charge in order to maximize its profit?

Question

Maker Sun Chairs is trying to determine the optimal price to charge for its galvanized deck chairs. The company has total fixed costs of $120,000 and the deck chairs have a unit variable cost of $27.00 per unit. Maker Sun Chairs has determined that the following relationships exist between price and demand: $$\begin{array} { c c } 
\text { Unit Price } & \text { Unit Demand } \
\$ 45 & 7,200 \
\$ 44 & 7,800 \
\$ 43 & 8,400 \
\$ 42 & 8,800
\end{array}$$ What price should Maker Sun Chairs charge in order to maximize its profit?

Quizplus · Accepted Answer

To maximize profit, Maker Sun Chairs should calculate the profit for each price point and choose the one with the highest profit. Profit is calculated as (Price - Variable Cost) * Demand - Fixed Costs. At $43, the profit is maximized.