The manager of a sole distributorship for a famous brand of automobiles was

discussing with the assistant manager the planned introduction by mid-year of a

new model, the XP-60. It was decided earlier that the price be set at P400,000, at

which level the total number of units sold was estimated at 500 units annually. The

assistant manager has suggested that the price should be set at a somewhat lower

level, say, at P360,000 in order to attract a major segment of the non-targeted

market. At this lower price, 1,000 units are expected to be sold.

A. Formulate the firm's linear demand equation for the product given the estimates

and projections made. (3 points)

B. What is the (point) price elasticity of demand at price P400,000? At P360,000?

What do these value imply of the elasticity of demand for brand XP-60? (6

points)

C. Determine the total revenue (TR) function and the marginal revenue (MR)

function. (4 points)

D. Will total revenue increase as a result of the decision to reduce the price? If so,

by how much? (3 points)

E. Should the firm raise the price? Justify your answer. (3 points)

F. What price and quantity combination will the firm realize the maximum TR? (2

points)