If Mary bought another machine, she could increase her production capacity to 2 500 curtains. Repayments on the machine would be R700 per month, and she would need an extra member of staff, costing R1 000 per month. She would also have to pay a bonus to all staff of 50 cents per pair of curtains, over and above their current wages, and variable production overheads would increase by 30 cents per pair of curtains.

In order to increase sales, she would have to reduce the price: she estimates demand at different price levels to be as follows:

Price

Estimated monthly demand

R14

1 500

R13

2 000

3R12

2 500

What would be the optimum price?(10)