Question

A podiatrist fits about 45 patients per week with new orthotic shoe inserts. She finds that by reducing the price of a follow-up visit from $30 to $20, the number of patients returning for a follow-up visit increases from 15 to 25. Further reducing the price from $20 to $5 increases the number of follow-up visits to 30.

a)Marginal revenue generated by the price reduction from $30 to $20 is -50.

b)Marginal revenue generated by the price reduction from $20 to $5 is 350.

c)In order to maximize profits, the best decision for this podiatrist is to reduce the price to $5, as this will results in the largest increase in demand.

d)In order to maximize profits, the best decision for this podiatrist is to reduce the price to $20, as this will result in the largest total revenue

e)It is impossible to determine which price level would maximize profits for this podiatrist, as information about costs is not available.

Answer 1

As the question is asking us to find the values of marginal revenue and profit maximizing price however to find the profits,which is given by Profits=TR-TC and to find the profit maximizing price which is given by MR=MC,we need information on the cost that is incurred which is absent so the correct answer is

option (E) It is impossible to determine which price level would maximize profits for this podiatrist as information about costs is not available.