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
Profit maximizing price is the price at that point where MR = MC
Marginal cost = Marginal revenue.
The inverse elasticity rule is:
MR = P ...
The solution computes the profit maximizing price equating the marginal cost with marginal revenue.