Coble 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. The product's variable cost is $15.70 per unit.
-The product's profit-maximizing price according to the formula in the text is closest to:
A) $46.48
B) $30.12
C) $49.21
D) $84.37

Question

Coble 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.  The product's variable cost is $15.70 per unit.
-The product's profit-maximizing price according to the formula in the text is closest to:
A) $46.48 
B) $30.12 
C) $49.21 
D) $84.37

Quizplus · Accepted Answer

Using the formula in the text, the profit-maximizing price is equal to (1 + (1/Ed)) x VC, where Ed is the price elasticity of demand and VC is the variable cost per unit. Using the data provided, we can calculate the price elasticity of demand using the midpoint method:
Price elasticity of demand = ((6200-6700)/((6200+6700)/2)) / ((28.00-33.00)/((28.00+33.00)/2)) = -1.22
Therefore, the profit-maximizing price is (1 + (1/-1.22)) x $15.70 = $30.12, which is closest to choice B).

Coble Company Recently Changed the Selling Price of One of Its