A lash adjuster keeps the pressure constant on engine valves, increasing automobile engines’ fuel efficiency. The relationship between price (p) and monthly demand (D) for lash adjusters made by the Wicks Company is given by this equation: D=(2,000− p)/0.20. a) What is the demand (D) when total revenue is maximized? b) What important data are needed if maximum profit is desired?

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EXPERT ANSWER

D= (2000 – P) / 0.20

D =? To maximize total revenue. You should use D = a / 2b

Note that you should convert the demand function to price function before doing the calculation

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P = 2000 – 0.2 D

D = 2000 / 2×0.2 = 5000 units

Variable cost is the important missing data needed to find the demand that gives us the maximum

profit D= (a-vc) / 2b