Question

A diner has no competition when it comes to its famous Reuben sandwich combo plate, for which the graph shows the diner's demand (D), marginal cost (MC), and marginal revenue (MR) curves. The price of $20 is based on the MR MC rule for profit maximization. The rectangular region shown represents the net revenue from sales of the sandwich (total revenue from Reuben combo sales minus total variable costs associated with Reuben combo sales) 

Now, suppose the diner decides to raise the price during the lunch hour, which accounts for 60% of Reuben combo sales, knowing that its lunch-hour patrons are the most loyal buyers of the Reuben combo and also that they are locked into the lunchtime slot by their work schedules. The diner raises the price just enough not to lose any lunch-hour buyers. Use the area tool to outline the region representing the resulting additional net revenue from the price increase. Your answer should be a rectangle drawn with four corners. 

 

As a result of the revised price structure, the diners net revenue from Reuben combo sales goes from $____ to $____ per day.

Answer 1

The sales at lunch hour are 60% of total sales which implies sales in the afternoon are 60% x 150 = 90. At 90, the price is $24. Hence the additional net revenues that is earned is the difference of old price and new price. This is shown by red coloured region

Net revenue rises from (20 - 10)*150 = $1500 to become (24 - 10)*90 + (20 - 10)*(150 - 90) = $1860.