You work for a company in India that manufactures and exports batteries and other charge storage devices. You are the sales manager for a DC-DC converter that is used to step up or step down the voltage in various industrial applications. You currently price the product at 4,000 Indian Rupees (INR) and sell 100,000 units. You estimate that if you priced the product at 3,000 INR you would sell 150,000 units.
You think it is reasonable to assume that your demand curve is linear.
1. Derive the equation for your demand curve from the two price and sales points discussed above.
2. Are you currently operating in the elastic or inelastic portion of your demand curve?
3. You are paid a sales commission based on your total sales. What price would you charge to maximize your bonus?
4. Is this price likely to be optimal from your firm’s standpoint, which has profit maximization as a goal?