The price elasticity of demand for Rosie's Roses fresh flowers the week of Valentine's Day is 1.40 and is 2.25 other days of the year. If Rosie's Roses faces a constant marginal cost of $2 per rose, what is the profit- maximizing peak- load price to charge the week of Valentine's Day?
A)$7.00
B)$5.60
C)$3.60
D)$9.50

Question

Quizplus · Accepted Answer

The profit-maximizing price can be calculated using the formula: P = MC / (1 - 1/Ed), where P is the price, MC is the marginal cost, and Ed is the price elasticity of demand. For Valentine's Day, Ed = 1.40 and MC = $2. So, P = 2 / (1 - 1/1.40) = $7.00.

The Price Elasticity of Demand for Rosie's Roses Fresh Flowers