Inkeo Company recently changed the selling price of one of its products. Data concerning sales for comparable periods before and after the price change are presented below. $$\begin{array} { c c }
\text { Selling Price } & \text { Unit Sales } \
\$ 12.00 & 4,300 \
\$ 11.00 & 5,030
\end{array}$$ The product's variable cost is $12.70 per unit. According to the formula in the text, the product's profit-maximizing price is closest to:
A)$28.87
B)$28.53
C)$15.91
D)$29.91

Question

Inkeo Company recently changed the selling price of one of its products. Data concerning sales for comparable periods before and after the price change are presented below. $$\begin{array} { c c } 
\text { Selling Price } & \text { Unit Sales } \
\$ 12.00 & 4,300 \
\$ 11.00 & 5,030
\end{array}$$ The product's variable cost is $12.70 per unit. According to the formula in the text, the product's profit-maximizing price is closest to:
A)$28.87
B)$28.53
C)$15.91
D)$29.91

Quizplus · Accepted Answer

The profit-maximizing price is the price that maximizes the product's contribution margin per unit. The contribution margin per unit is the difference between the selling price and the variable cost per unit. In this case, the contribution margin per unit is $12.00 - $12.70 = -$0.70. The profit-maximizing price is the price that maximizes the contribution margin per unit, which is $11.00.

Inkeo Company Recently Changed the Selling Price of One of Its