Ingham Corporation 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. The product's variable cost is $16.40 per unit. According to the formula in the text, the product's profit-maximizing price is closest to:
A)$35.82
B)$32.89
C)$35.23
D)$20.74

Question

Ingham Corporation 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.  The product's variable cost is $16.40 per unit. According to the formula in the text, the product's profit-maximizing price is closest to:
A)$35.82 
B)$32.89 
C)$35.23 
D)$20.74

Quizplus · Accepted Answer

% change in quantity sold = (5, 090 - 4, 300)/4, 300 = +18.37% % change in price = ($11 - $12)/$12 = -8.11% ε_d = ln(1 + % change in quantity sold)/ln(1 + % change in price) = ln(1 + (0.1837))/ln(1 + (-0.0811))= -1.99 Profit-maximizing markup on variable cost = -1/(1 + ε_d) = -1/(1 + (-1.99))= 1.01 Profit-maximizing price = (1 + Profit-maximizing markup on variable cost)× Variable cost per unit = (1 + 1.01)× $16.40 = $32.96 (the exact answer without rounding error is $32.89)

Ingham Corporation Recently Changed the Selling Price of One of Its