A mobile-phone repair firm charges $80 for a screen replacement. During April it completed 300 repairs. In May it cut its price to $70 and completed 380 rep...
Question 1 Report
A mobile-phone repair firm charges $80 for a screen replacement. During April it completed 300 repairs. In May it cut its price to $70 and completed 380 repairs, while total costs in May were $22,000.
(a) Calculate the firm's total revenue in April. [2]
(b) Calculate the firm's total revenue and profit in May. [3]
(c) Analyse whether the lower price was likely to be a good decision for the firm. [4]
Answer Details
(a) Total revenue equals price multiplied by number of repairs:
\[300\times\$80=\$24000\]
April total revenue was $24000 [2].
(b) In May:
\[\text{Total revenue}=380\times\$70=\$26600\]
\[\text{Profit}=\$26600-\$22000=\$4600\]
May total revenue was $26600 [1] and May profit was $4600 [2].
(c) Revenue rose from $24000 to $26600 [1]. Although the price fell from $80 to $70, the number of repairs rose from 300 to 380. The increase in repairs was proportionately greater than the price fall, so revenue increased [1].
The lower price may have been a good decision if April profit was below $4600, because then May profit would be higher [1]. However, April costs are not given, so this cannot be proved from revenue alone. A lower price reduces revenue per repair, and the extra repairs may increase costs or reduce service quality [1]. Compare profits, not just revenues, when judging a pricing decision.
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