Question 4: (10 marks) (B1, C3)

Ahlia Co manufactures mobile phones. It has been extremely successful in the past, but the market has become extremely competitive. The company is considering a number of different strategies to improve its profitability. The most successful product is the Y99 which is sold for $110. Weekly demand is currently 20,000 phones. Market research has revealed that if Ahlia Co reduced the price of the Y99 by $10, demand would increase by 2,000 phones.

The product has a constant variable cost per unit of $60.

Instructions:

1. Determine the demand function. (4 marks)
2. Determine the output level to maximize profit. (4 marks)
3. Determine the price to be charged to maximize profit. (2 marks)