question archive Last week, Discount Food Stores, Inc
Last week, Discount Food Stores, Inc
Subject:MarketingPrice:2.88 Bought3
Last week, Discount Food Stores, Inc. reduced the average price on the 2222 ounce size of Dishwashing Liquid by 1%1%. In response, sales jumped by 8%8%.
A) Calculate the point price elasticity of demand for Dishwashing Liquid.
B) Calculate the optimal price for Dishwashing Liquid if marginal cost is 7070 cents per unit.
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A) Price elasticity is the percentage change in the quantity demanded divided by the percentage change in price, i.e.,
- 8% / (-1%) = -8
B) We can use the following formula to compute the optimal price:
- optimal price = marginal cost * / (1 + 1 / price elasticity)
- optimal price = 0.7 / (1 + 1/(-8))
- optimal price = 0.8
