Inkeo Company 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. The product's variable cost is $12.70 per unit. According to the formula in the text,the product's profit-maximizing price is closest to:
A)$28.87
B)$28.53
C)$15.91
D)$29.91

Question

Inkeo Company 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.  The product's variable cost is $12.70 per unit. According to the formula in the text,the product's profit-maximizing price is closest to:
A)$28.87 
B)$28.53 
C)$15.91 
D)$29.91

Quizplus · Accepted Answer

% change in quantity sold = (5,030 - 4,300)/4,300 = +16.98% % change in price = ($11 - $12)/$12 = -8.33% F1F1F1S1F1F1F10_d = ln(1 + % change in quantity sold)/ln(1 + % change in price) = ln(1 + (0.1698))/ln(1 + (-0.0833))= -1.80 Profit-maximizing markup on variable cost = -1/(1 + F1F1F1S1F1F1F10_d) = -1/(1 + (-1.80))= 1.25 Profit-maximizing price = (1 + Profit-maximizing markup on variable cost)F1F1F1S1F1F1F10 Variable cost per unit = (1 + 1.25)F1F1F1S1F1F1F10 $12.70 = $28.58 (the exact answer without rounding error is $28.53)

Inkeo Company Recently Changed the Selling Price of One of Its