Troy City Inc., manufactures a product and is considering raising the price by $20 a unit for the coming year. With a $20 price increase, demand is expected to fall by 2500 units.

Would you recommend the $20 price increase?

Question

Troy City Inc., manufactures a product and is considering raising the price by $20 a unit for the coming year. With a $20 price increase, demand is expected to fall by 2500 units.

Would you recommend the $20 price increase?

Quizplus · Accepted Answer

Old operating income = $1,260,000 (21,000 × ($170 - $110)). New operating income = $1,480,000 (18,500 × ($190 - $110). Net increase in operating profits= $220,000 ($1,480,000 - $1,260,000).