Right Air Supply sells a specialized air filter that has a variable cost of $10 each.Fixed costs are estimated to be $700,000 across all levels of sales shown below: $$\begin{array} { c c }
\text { Units Dem anded } & \text { Unit Price } \
\hline 80,000 & \$ 35 \
90,000 & \$ 33 \
100,000 & \$ 31 \
110,000 & \$ 30 \
120,000 & \$ 28
\end{array}$$ What price should Right Air Supply charge to maximize profits?

Question

Right Air Supply sells a specialized air filter that has a variable cost of $10 each.Fixed costs are estimated to be $700,000 across all levels of sales shown below: $$\begin{array} { c c } 
\text { Units Dem anded } & \text { Unit Price } \
\hline 80,000 & \$ 35 \
90,000 & \$ 33 \
100,000 & \$ 31 \
110,000 & \$ 30 \
120,000 & \$ 28
\end{array}$$ What price should Right Air Supply charge to maximize profits?

Quizplus · Accepted Answer

To maximize profits, Right Air Supply should choose the price that results in the highest total profit. Profit is calculated as (Unit Price - Variable Cost) * Units Demanded - Fixed Costs. Calculating for each price:  - At $35: Profit = (35-10)*80,000 - 700,000 = $1,300,000  - At $33: Profit = (33-10)*90,000 - 700,000 = $1,370,000  - At $31: Profit = (31-10)*100,000 - 700,000 = $1,400,000  - At $30: Profit = (30-10)*110,000 - 700,000 = $1,500,000  - At $28: Profit = (28-10)*120,000 - 700,000 = $1,460,000  The highest profit is at a price of $30, resulting in a profit of $1,500,000.

Right Air Supply Sells a Specialized Air Filter That Has