Explore BrainMass

Explore BrainMass

    Finding the Profit Maximizing Price

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Med Company has unit sales of 100,000 with a unit price of $5. The variable costs are $1. The fixed expenses are $350,000. The company's sale manager thinks that Med should lower the price. He thinks that for every 2% drop in price, there will be a 5% increase in sales.

    What is the profit maximizing price?

    © BrainMass Inc. brainmass.com March 5, 2021, 1:53 am ad1c9bdddf
    https://brainmass.com/economics/demand-supply/finding-the-profit-maximizing-price-647361

    Solution Preview

    Profit maximizing price is the price at that point where MR = MC

    Marginal cost = Marginal revenue.

    The inverse elasticity rule is:
    MR = P ...

    Solution Summary

    The solution computes the profit maximizing price equating the marginal cost with marginal revenue.

    $2.49

    ADVERTISEMENT