Sample
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Question 1b
Jewel Co is setting up an online business importing and selling jewellery headphones. The cost of each set of headphones varies depending on the number purchased, although they can only be purchased in batches of 1,000 units. It also has to pay import taxes which vary according to the quantity purchased.
Jewel Co has already carried out some market research and identified that sales quantities are expected to vary depending on the price charged. Consequently, the following data has been established for the first month:
| Number of batches imported and sold | Average cost per unit including import taxes | Total fixed costs per month | Expected selling price per unit |
|---|---|---|---|
| $ | $ | $ | |
| 1 | 10·00 | 10,000 | 20 |
| 2 | 8·80 | 10,000 | 18 |
| 3 | 7·80 | 12,000 | 16 |
| 4 | 6·40 | 12,000 | 13 |
| 5 | 6·40 | 14,000 | 12 |
Required:
(b) Explain why Jewel Co could not use the algebraic method to establish the optimum price for its product. (4 marks)