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Optimal Price

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You are the manager of a gas station and your goal is to maximize profits. Based on your past experience, the elasticity of demand by Texans for a car wash is -4, while the elasticity of demand by non Texas car wash is -6. If you charge Texans $20 for a car wash, how much should you charge a man with Oklahoma license plates for a car wash? Show your work.

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Solution Preview

We know that optimal price is given by

Optimal Price = (Ep/(1 + Ep))* MC
Where MC=Marginal Cost
Ep =Price ...

Solution Summary

Optimal price for a car wash is determined.