Gillis Corporation's Marketing Manager Believes That Every 10% Increase in the Selling

question 69

Essay

Gillis Corporation's marketing manager believes that every 10% increase in the selling price of one of the company's products would lead to a 15% decrease in the product's total unit sales. The product's absorption costing unit product cost is $20.00. The variable production cost is $6.00 per unit and the variable selling and administrative cost is $3.00. The fixed selling and administrative expense averages $0.50 per unit.
Required:
a. Compute the product's price elasticity of demand as defined in the text to two decimal places.
b. Compute the product's profit-maximizing price according to the formula in the text.

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Definitions:

Dividend Yield

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price, providing insight into the income generated from an investment.

Cash Dividends

Payments made by a corporation to its shareholders, typically from profits, in the form of cash.

Treasury Stock

Shares that were issued and later reacquired by the issuing company, reducing shareholders' equity and outstanding shares.

Cash Dividend

A payment made by a company out of its earnings to shareholders, distributing profits in the form of cash.