These are sample practice MCQs created for exam preparation. These are NOT official exam questions.
CURRENT STATE: Product priced at $89 sells 3,200 units/month with $38 unit cost. MARKET RESEARCH: Raising price to $99 would reduce volume by 18%. EXECUTIVE GOAL: "Maximize monthly gross profit." Should the company raise the price?
Question:
CURRENT STATE: Product priced at $89 sells 3,200 units/month with $38 unit cost. MARKET RESEARCH: Raising price to $99 would reduce volume by 18%. EXECUTIVE GOAL: "Maximize monthly gross profit." Should the company raise the price?
CURRENT STATE: Product priced at $89 sells 3,200 units/month with $38 unit cost. MARKET RESEARCH: Raising price to $99 would reduce volume by 18%. EXECUTIVE GOAL: "Maximize monthly gross profit." Should the company raise the price?
Options
Answer: (C) No, gross profit decreases by $3,136
Explanation:
Current: Units = 3,200, Margin = $89 - $38 = $51, GP = 3,200 × $51 = $163,200. New: Units = 3,200 × 0.82 = 2,624, Margin = $99 - $38 = $61, GP = 2,624 × $61 = $160,064. Decrease = $163,200 - $160,064 = $3,136.
Explanation:
Current: Units = 3,200, Margin = $89 - $38 = $51, GP = 3,200 × $51 = $163,200. New: Units = 3,200 × 0.82 = 2,624, Margin = $99 - $38 = $61, GP = 2,624 × $61 = $160,064. Decrease = $163,200 - $160,064 = $3,136.
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