Question

A faculty member sells Gatorade at UNC Charlotte football games. He finds that if he raises his selling price by $1, he sells 6 less bottles each week. He turns over the operation to a Managerial Economics student for a week. The goal is to maximize revenue since the faculty member has a vast supply of Gatorade, and any unsold bottles can be sold in future weeks.The student takes over the operation for a week. She says she sold at the revenue-maximizing price of $4 per bottle. How many units sold?Show your work/thought process:

Answer 1

When selling price is increased by $1, we see that there is a reduction in sales by 6 bottles each week.

This shows that the slope of the demand is -6

Now sales revenue is maximized at a price of $4 per bottle.

When revenue is maximum, elasticity of demand is -1.

Thus we have elasticity = slope x P/Q

-1 = -6 * 4/Q

Q = 24

Hence, at the revenue maximizing price a total of 24 bottles are sold.