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Nikolay
1 month ago
14

Your company manufactures two models of speakers, the Ultra Mini and the Big Stack. Demand for each depends partly on the price

of the other. If one is expensive, then more people will buy the other. If p1 is the price of the Ultra Mini, and p2 is the price of the Big Stack, demand (quantity sold) for the Ultra Mini is given by q1(p1, p2) = 100,000 ? 800p1 + p2 where q1 represents the number of Ultra Minis that will be sold in a year. The demand for the Big Stack is given by: q2(p1, p2) = 150,000 + p1 ? 800p2
Find the prices for the Ultra Mini and the Big Stack that will maximize your total revenue.
Mathematics
1 answer:
PIT_PIT [9.1K]1 month ago
4 0

Answer:

1. For Ultra Minis, the equation is p1 = (100,000 - p2)/1,600

2. For Big Stack, the equation is p2 = (150,000 - p1)/1,600

Step-by-step explanation:

Given the demand equations which reflect an inverse correlation between price and the quantity demanded, the placeholders in both equations should be interpreted as negative signs. So, we can rewrite the functions as:

q1(p1, p2) = 100,000 - 800p1 + p2................................ (1)

q2(p1, p2) = 150,000 + p1 - 800p2............................... (2)

Total revenue (TR) in economics is defined as the quantity sold multiplied by the price, hence we can calculate the total revenues for Ultra Mini (TRq1) and Big Stack (TRq2) by multiplying equations (1) and (2) by p1 and p2 respectively:

For q1:

TRq1 = p1 * q1(p1, p2) = p1(100,000 - 800p1 + p2)

TRq1 = 100,000p1 - 800p1^2 + p1p2.......................... (3)

For q2:

TRq2 = p2 * q2(p1, p2) = p2(150,000 + p1 - 800p2)

TRq2 = p2150,000 + p1p2 - 800p2^2........................ (4)

To find marginal revenues (MR), we will differentiate each of these revenue functions:

For equation (3), taking the partial derivative with respect to p1 and setting it to zero:

MR = dTRq1/dp1 = 100,000 - 2(800p1) + p2 = 0

= 100,000 - 1,600p1 + p2 = 0

Rearranging gives:

1,600p1 = 100,000 - p2

p1 = (100,000 - p2)/1,600.................................. (5)

In equation (5), p1 represents the price that maximizes Ultra Mini's total revenue.

Now differentiating equation (4) with respect to p2 and setting it to zero:

MR = dTRq2/dp2 = 150,000 + p1 - 2(800p2) = 0

= 150,000 - 1,600p2 + p1 = 0

Rearranging yields:

1,600p2 = 150,000 - p1

p2 = (150,000 - p1)/1,600.................................... (6)

The value for p2 in equation (6) is the price that optimizes the total revenue for Big Stack.

Thus, the optimal prices for maximizing total revenue are p1 = (100,000 - p2)/1,600 for Ultra Minis and p2 = (150,000 - p1)/1,600 for Big Stack.

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