Boatsman Company's management believes that every 4% decrease in the selling price of one of the company's products would lead to a 7% increase in the product's total unit sales. The product's variable cost is $14.20 per unit.
-The product's profit-maximizing price according to the formula in the text is closest to:
A) $25.66
B) $25.21
C) $35.80
D) $60.44

Question

Quizplus · Accepted Answer

The profit-maximizing price can be calculated using the formula: P = (VC / (1 - (E / (E + 1)))), where VC is the variable cost and E is the price elasticity of demand. Here, E = 7% / 4% = 1.75. Plugging in the values, P = $14.20 / (1 - (1.75 / 2.75)) = $35.80.

Boatsman Company's Management Believes That Every 4% Decrease in the Selling