Kaylee’s Quality Quadratic Coffee Company (KQQCC) sells tall lattés for $3.25 each. Assume this is the only product KQQCC sells. KQQCC has fixed costs of $1,200 per month, and its actual cost to produce each latté is 95 cents.
A. KQQCC sells 2,000 lattés per month at the price of $3.25. Kaylee experimented with raising the price to $3.75 and found that sales dropped to 1,600 lattés per month. Assuming that this relationship between price and sales is linear, find a formula for the number of lattés she sells as a function of the price that she charges. Then find a formula for her revenue as a function of the price she charges, and determine the price she should charge, rounded to the nearest five cents, to maximize revenue.
B. KQQCC’s profit is its revenue minus its total costs. Determine the price it should charge to maximize profit.