Gillis Corporation's marketing manager believes that every 10% increase in the selling price of one of the company's products would lead to a 15% decrease in the product's total unit sales. The product's absorption costing unit product cost is $20.00. The variable production cost is $6.00 per unit and the variable selling and administrative cost is $3.00. The fixed selling and administrative expense averages $0.50 per unit.
Required:
a. Compute the product's price elasticity of demand as defined in the text to two decimal places.
b. Compute the product's profit-maximizing price according to the formula in the text.

Question

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The Answer of Gillis Corporation's marketing manager believes that every 10% increase in the selling price of one of the company's products would lead to a 15% decrease in the product's total unit sales. The product's absorption costing unit product cost is $20.00. The variable production cost is $6.00 per unit and the variable selling and administrative cost is $3.00. The fixed selling and administrative expense averages $0.50 per unit.
Required:
a. Compute the product's price elasticity of demand as defined in the text to two decimal places.
b. Compute the product's profit-maximizing price according to the formula in the text.

Gillis Corporation's Marketing Manager Believes That Every 10% Increase in the Selling