You are the manager of Frozen Super Paws Treats, the dominant firm in market for frozen ice cream treats for dogs. At your current production level, your marginal cost is $1.00 and you have estimated that your price elasticity of demand is between 1.5 and 1.6. What range of prices should you charge to maximize your profit?

Question

Quizplus · Accepted Answer

The correct answer is A because the range between $2.67 and $3.00 is the range of prices that will maximize profit for Frozen Super Paws Treats. This is because the price elasticity of demand is between 1.5 and 1.6, which means that a 1% increase in price will lead to a 1.5% to 1.6% decrease in demand. Therefore, Frozen Super Paws Treats should charge a price that is high enough to cover its marginal cost of $1.00, but low enough to keep demand high. The range between $2.67 and $3.00 is the range of prices that meets these criteria.

You Are the Manager of Frozen Super Paws Treats, the Dominant