ExpertHard2 marksMultiple Choice
ACCA · Question 22 · Decision-making techniques
Section B - Case 2: CyberShield
CyberShield is a tech startup developing a new B2B SaaS (Software as a Service) platform for cybersecurity.
The company wants to find the profit-maximizing price. The demand equation is P = 200 - 0.02Q. The marginal cost (MC) of adding a new user is constant at $20 per month.
What is the optimum selling price to maximize profit?
Section B - Case 2: CyberShield
CyberShield is a tech startup developing a new B2B SaaS (Software as a Service) platform for cybersecurity.
The company wants to find the profit-maximizing price. The demand equation is P = 200 - 0.02Q. The marginal cost (MC) of adding a new user is constant at $20 per month.
What is the optimum selling price to maximize profit?
Answer options:
A.
$90
B.
$110
C.
$20
D.
$200
How to approach this question
1. Find Marginal Revenue (MR) equation: MR = a - 2bQ. 2. Set MR = Marginal Cost (MC). 3. Solve for Q. 4. Substitute Q back into the demand equation (P = a - bQ) to find P.
Full Answer
B.$110✓ Correct
1. Demand equation: P = 200 - 0.02Q (where a = 200, b = 0.02)
2. Marginal Revenue equation: MR = a - 2bQ = 200 - 0.04Q
3. Profit is maximized where MR = MC:
200 - 0.04Q = 20
180 = 0.04Q
Q = 4,500 units
4. Substitute Q into the demand equation to find Price:
P = 200 - 0.02(4,500)
P = 200 - 90 = $110.
Common mistakes
Setting P = MC instead of MR = MC, or forgetting to substitute Q back into the price equation.
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