Finding the Profit Maximizing Price
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Med Company has unit sales of 100,000 with a unit price of $5. The variable costs are $1. The fixed expenses are $350,000. The company's sale manager thinks that Med should lower the price. He thinks that for every 2% drop in price, there will be a 5% increase in sales.
What is the profit maximizing price?
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Solution Summary
The solution computes the profit maximizing price equating the marginal cost with marginal revenue.
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Profit maximizing price is the price at that point where MR = MC
Marginal cost = Marginal revenue.
The inverse elasticity rule is:
MR = P ...
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- MPhil, Madurai Kamaraj University
- MCom, Annamalai University
- IATA, International Air Transport Association
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