Kristin owns a bakery called Kristin's Cakes n' Such and is considering lowering the price of her cakes. Kristin polls her customers and determines that she can sell 100 cakes each week when she charges $25 each. She also discovers that for every $1 decrease in the price of the cake, she will sell 5 more cakes. The graph below represents Kristin's projected weekly revenue for each decrease in price.
2800
2600 point one is at(2.5, 2531.25)
2400
2200
2000
1800
1600
1400
1200
1000
800
600
400
200
0
Revenue (in dollars)
10
20
point two is at (25, 0)
30
40
Decrease in Price (in dollars)
Based on the information provided, Kristin's optimal price for her cakes would be $15, as this would generate the highest revenue of $2800. At this price point, she would sell 140 cakes each week.
If Kristin were to decrease the price further to $10, her revenue would decrease to $2531.25 as shown in point one on the graph. This decrease in revenue is due to the fact that the increase in cake sales (25) is not enough to offset the decrease in price.
On the other hand, if Kristin were to increase the price of her cakes, her revenue would also decrease. For example, if she were to increase the price to $30, she would only sell 80 cakes each week, resulting in a revenue of $2100 as shown in point two on the graph.
Therefore, Kristin's best option is to stick with the price of $15 for her cakes in order to maximize her revenue.