Warvel Corporation's management has found that every 5% increase in the selling price of one of the company's products leads to an 8% decrease in the product's total unit sales. The variable production cost of the product is $18.00 per unit and the variable selling and administrative cost is $12.00 per unit. According to the formula in the text, the product's profit-maximizing price is closest to:
A)$63.08
B)$72.31
C)$96.41
D)$58.67

Question

Quizplus · Accepted Answer

The profit-maximizing price can be calculated using the formula: P = (VC / (1 - (1/E))), where VC is the variable cost per unit and E is the price elasticity of demand. Here, VC = $18 + $12 = $30, and E = -8% / 5% = -1.6. Plugging these into the formula gives P = $30 / (1 - (1/-1.6)) = $72.31.

Warvel Corporation's Management Has Found That Every 5% Increase in the Selling