Pashicke Corporation Recently Changed the Selling Price of One of Its

Question

Examlex · Accepted Answer

The Answer is a.% change in quantity = (7, 840 - 7, 300)÷ 7, 300 = 7.40%
% change in price = ($44 - $46)÷ $46 = -4.35%
ε_d = ln(1 + % change in quantity sold)/ln(1 + % change in price)
= ln(1 + 7.40%)/ln(1 + -4.35%)= -1.61
b.Profit-maximizing markup on variable cost = -1/(1 + ε_d)= -1/(1 + (-1.61))= 1.64
Profit-maximizing price = (1 + Profit-maximizing markup on variable cost)× Variable cost per unit
= (1 + 1.64)× $17.10 = (2.64)× $17.10 = $45.14 (The answer without rounding error is $45.34. )

Pashicke Corporation Recently Changed the Selling Price of One of Its

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