Pasta Corporation Recently Changed the Selling Price of One of Its

question 35

Essay

Pasta Corporation recently changed the selling price of one of its products. Data concerning sales for comparable periods before and after the price change are presented below. $\begin{array}{cc}\text { Selling Price } & \text { Unit Sales } \\\text { \$56.00 } & 3,000 \\\text { \$61.00 } & 2,590\end{array}$ The product's variable cost is $15.90 per unit.
Required:
a Compute the product's price elasticity of demand as defined in the text.
b. Compute the product's profit-maximizing price according to the formula in the text.

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Definitions:

Mass Production

A manufacturing process that produces large quantities of standardized products using assembly lines or automation technology.

Higher Prices

An increase in the cost of goods or services in the marketplace, often due to factors like inflation, supply and demand, or production costs.

Monopolistically Competitive

Refers to a market structure where many companies sell products that are similar but not identical, leading to competitive prices and product differentiation.

Profit-maximizing Output

The level of production at which a company achieves the maximum possible profit, where marginal cost equals marginal revenue.