The price elasticity of demand for Rosie's Roses fresh flowers the week of Valentine's Day is 1.10 and is 1.60 other days of the year. If Rosie's Roses faces a constant marginal cost of $0.75 per rose, what is the profit- maximizing peak- load price to charge the week of Valentine's Day?
A)$8.25
B)$6.50
C)$2.00
D)$11.00

Question

Quizplus · Accepted Answer

The profit-maximizing price, $P$, can be found using the formula $P = MC \times \frac{E}{E - 1}$, where $MC$ is the marginal cost and $E$ is the price elasticity of demand. For Valentine's Day, with $MC = $0.75$ and $E = 1.10$, the calculation is $P = 0.75 \times \frac{1.10}{1.10 - 1} = 0.75 \times \frac{1.10}{0.10} = 0.75 \times 11 = $8.25$.

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