Rosemonde A. answered • 07/01/17
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If the food truck charges $2.00 per hot dog, it will sell 90 hot dogs so its daily revenue will be $2.00*90 hot dogs=$180.00.
If the food truck decreases the price $0.50, the price per hot dog will be $2.00-$0.50=$1.50. It will sell 15 more hot dogs, so it will sell 90+15=105 hot dogs. Its daily revenue will then be $1.50*105=$157.50.
To recap, at $2.00 per hot dog, the food truck will make $180.00. At $1.50 per hot dog, it will make $157.50.
So the food truck makes more money by selling each hot dog at $2.00.
Walter B.
Sorry, I meant from a micro economic point of view
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07/01/17
Walter B.
Here is a different way to look at the problem from a macroeconomic point of view.
Think of this as an algebraic equation of a linear relationship between quantity (the dependent variable) and the price (the independent variable). The first point has x, y coordinates of 1.5, 105 while the second point has coordinates of 2, 90. We can use these points in the point slope formula to derive the equation Q (quantity) = -30*price +150.
Revenue = Price * Quantity
Revenue = Price * (-30*Price + 150)
Revenue = -30*Price^2 + 150*Price
We need to find where this equation is maximized, so we take the first derivative of Revenue with respect to price which yields:
d(Revenue)/dPrice = -60*Price + 150
Setting this derivative equal to zero (where the function is at a maximum) gives us
60* Price = 150 or Price = 150/ 60 or 2.5
Therefore a price of $2.5 will maximize the revenue.
Hope this helps.
07/01/17