Finnie Company's management believes that every 5% increase in the selling price of one of the company's products results in a 13% decrease in the product's total unit sales.The variable production cost of this product is $23.10 per unit and the variable selling and administrative cost is $5.40 per unit. The product's profit-maximizing price according to the formula in the text is closest to:
A)$32.03
B)$47.48
C)$43.87
D)$33.63

Question

Quizplus · Accepted Answer

F1F1F1S1F1F1F10_d = ln(1 + % change in quantity sold)/ln(1 + % change in price) = ln(1 + (-0.13))/ln(1 + 0.05)= -2.85 Profit-maximizing markup on variable cost = -1/(1 + F1F1F1S1F1F1F10_d) = -1/(1 + (-2.85))= 0.54 Profit-maximizing price = (1 + Profit-maximizing markup on variable cost)F1F1F1S1F1F1F10 Variable cost per unit = (1 + 0.54)F1F1F1S1F1F1F10 ($23.10 + $5.40)= $43.89 (the exact answer without rounding error is $43.87)

Finnie Company's Management Believes That Every 5% Increase in the Selling