texaza a product design firm has just completed a contract to develop a wireless pho 544897

Traditional Economic Pricing Theory

E 3. Texaza, a product design firm, has just completed a contract to develop a wireless phone keychain. The phone keychain needs to be recharged only once a week and can be used worldwide. Initial fixed costs for this product are $4,000. The designers estimate that the product will break even at the $5,000/100-unit mark. Total revenues will again equal total costs at the $25,000/900-unit point. Marginal cost is expected to equal marginal revenue when 550 units are sold.

1. Sketch total revenue and total cost curves for this product. Mark the vertical axis at each $5,000 increment and the horizontal axis at each 100-unit increment.

2. Based on your total revenue and total cost curves in 1, at what unit selling price will profits be maximized?