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    Finding the Profit Maximizing Price

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    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?

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    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.