Smith's Electronics originally priced a private-label portable DVD player at $90, and then sold 1,500 units per week. After raising the price to $100, sales dropped to 1,000 units per week. First, determine the price elasticity, and then determine the profit-maximizing price if the private-label portable DVD player costs $50.
A) $90
B) $85.70
C) $75
D) $70.25
E) $70

Question

Quizplus · Accepted Answer

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For products with price elasticities less than 1, the price that maximizes profits can be determined by the following formula:
Profit-maximizing price = (Price elasticity × Cost)/(Price elasticity + 1).

Smith's Electronics Originally Priced a Private-Label Portable DVD Player at $90