At a price of $4.00 each,SHAPE magazine sells 1.25 million copies of its magazine targeted to young women seeking a healthier lifestyle.If the price per issue is increased to $4.50 each,only 1 million copies will be sold.Fixed costs are $1 million and unit variable costs are $0.50 per magazine.Calculate the average revenue for SHAPE magazine at the higher price.
A)$0.50
B)$1.25
C)$4.00
D)$4.50
E)$8.50

Question

Quizplus · Accepted Answer

A) Average revenue per unit can be calculated by dividing total revenue by number of units sold. As we are not given the total revenue, we cannot calculate average revenue to be $0.50.
B) Same as option A, we cannot calculate average revenue to be $1.25 without knowing the total revenue.
C) Average revenue at the original price would be $4.00, but the question specifically asks for the average revenue at the higher price, which is not $4.00.
D) At the higher price of $4.50 per issue, SHAPE magazine will sell 1 million copies. Total revenue can be calculated by multiplying the number of units sold by the selling price, which would be 1,000,000 x $4.50 = $4.5 million. Average revenue per unit can now be calculated by dividing total revenue by number of units sold, which would be $4.5 million / 1 million = $4.50.
E) Same as options A and B, we cannot calculate average revenue to be $8.50 without knowing the total revenue.

At a Price of $4