In the following case, what is the optimum number of bottles a company should include in their super saver pack? How much can the pack be priced for?A company has decided to create a super saver...

In the following case, what is the optimum number of bottles a company should include in their super saver pack? How much can the pack be priced for?

A company has decided to create a super saver pack of a set of bottles it sells. Extensive research done by them has determined that the quantity demanded by the customers is Q = 100 – 8P. The cost of production is given by R = 4x + .5.

Expert Answers
justaguide eNotes educator| Certified Educator

We will use the concepts of marginal cost of production and marginal revenue to solve this problem.

First, we see that the demand function is given by Q = 100 – 8P, where P is the price of one bottle. We can write this as

8P = 100 – Q

=> P = 100/8 – Q/8.

The cost of the pack if it has Q bottles is P*Q = Q*(100/8 – Q/8)

=> 12.5Q - 0.125Q^2

This gives us the revenue function. The marginal revenue is given by its derivative. That is equal to 12.5 - .25Q

Now the cost function is 4Q + .5, the marginal cost is given by its derivative as 4.

Equating the marginal cost and marginal revenue we get 4 = 12.5 - .25Q

=> .25Q = 12.5 – 4

=>  Q = 8.5 / .25 = 34

Therefore to maximise profits, the company should include 34 bottles in one pack and they can price the pack at $280.5.