Scribd
Upload
15 views2 pages

Profit Maximization Analysis

The analysis identifies the optimal price point for a struggling drink brand to maximize profit, which is determined to be $0.50, yielding a profit of $7,008,115.45. At higher prices, demand decreases significantly, leading to substantial losses, with a loss of $525,000 at the current price of $3.00. Therefore, the recommended strategy is to lower the price to $0.50 to enhance profitability.

Uploaded by

Mackenzie Immanuel
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
15 views2 pages

Profit Maximization Analysis

The analysis identifies the optimal price point for a struggling drink brand to maximize profit, which is determined to be $0.50, yielding a profit of $7,008,115.45. At higher prices, demand decreases significantly, leading to substantial losses, with a loss of $525,000 at the current price of $3.00. Therefore, the recommended strategy is to lower the price to $0.50 to enhance profitability.

Uploaded by

Mackenzie Immanuel
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

Profit Maximization Analysis

The goal of this analysis is to determine the optimal price point for a struggling drink brand to

maximize its total profit. The provided details include a price of $3, demand of 3,500,000 cans,

an elasticity of demand of 2.8, fixed costs of $7,000,000, and variable costs of $0.85 per can.

Given these conditions, we examined various price points to assess their impact on demand,

revenue, cost, and profit.

Methodology:

To maximize profit, we used the following key components:

1. Demand and Elasticity of Demand: We used the price elasticity of demand (2.8) to

predict how demand would change with adjustments in price.

2. Revenue Calculation: Total revenue is calculated as Price × Demand.

3. Cost Calculation: Total cost is computed as Fixed Cost + (Variable Cost per Can ×

Quantity Sold).

4. Profit Calculation: Profit is derived by subtracting Total Cost from Total Revenue.

Results:

At $0.50, the company experiences the highest profit of $7,008,115.45. As the price increases,

demand decreases, but at higher prices, the loss in profit is substantial. At $3.00, while the

demand reaches its lowest point of 3,500,000 cans, the company faces a loss of $525,000.
Conclusion:

The optimal price point for maximum profit is $0.50, where the profit is highest at

$7,008,115.45. Raising the price above this point reduces demand and increases costs at a faster

rate, causing significant losses in profit. Therefore, the best strategy for the company would be to

reduce its price to $0.50 to optimize profitability.

You might also like