Boden Company's management believes that every 2% increase in the selling price of one of the company's products would lead to a 5% decrease in the product's total unit sales. The product's variable cost is $19.30 per unit.
-The product's profit-maximizing price according to the formula in the text is closest to:
A)$37.39
B)$31.44
C)$40.88
D)$28.91

Question

Quizplus · Accepted Answer

F1F1F1S1F1F1F10_d = ln(1 + % change in quantity sold)/ln(1 + % change in price) = ln(1 + (-0.05))/ln(1 + (+0.02))= -2.59 Profit-maximizing markup on variable cost = -1/(1 + F1F1F1S1F1F1F10_d)= -1/(1 + (-2.59))= 0.63 Profit-maximizing price = (1 + Profit-maximizing markup on variable cost)F1F1F1S1F1F1F10 Variable cost per unit = (1 + 0.63)F1F1F1S1F1F1F10 $19.30 = $31.46 (the exact answer,without rounding error,is $31.44)

Boden Company's Management Believes That Every 2% Increase in the Selling