Determine the Profit-Maximizing Price Wendel Stove Company is developing a p

Determine the Profit-Maximizing Price

Wendel Stove Company is developing a professional model stove aimed at the home market. The company estimates that variable costs will be $2000 per unit
and fixed costs will be $10000000 per year.

Required

a. Suppose the company wants to set its price equal to full cost plus 30 percent. To determine cost the company must estimate the number of units it will
produce and sell in a year. Suppose the company estimates that it can sell 5000 units. What price will the company set?

b. What is odd about setting the price based on an estimate of how many units will be sold?

c. Suppose the company sets a price as in part a but the number of units demanded at that price turns out to be 4000. Revise the price in light of demand
for 4000 units.

d. What will happen to the number of units that will be sold if the price is raised to the one you calculated in part c?

e. Explain why setting price by marking up cost is inherently circular for a manufacturing firm.