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Price elasticity of demand

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In an effort to reduce excess end-of-the-model-year inventory, Harrison Ford offered a 1 percent discount off the average price of 4WD Escape Gas-Electric Hybrid SUVs sold during the month of August. Customer response was wildly enthusiastic, with unit sales rising by 10 percent over the previous month's level.

A.Calculate the point price elasticity of demand for Harrison Ford 4WD Escape Gas-Electric Hybrid SUVs sold during the month of August.

B.Calculate the profit-maximizing price per unit if Harrison Ford has an average wholesale (invoice) cost of $23,500 and incurs marginal selling costs of $350 per unit.

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Price elasticity of demand is assessed.

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a) Price elasticity of demand = % change in quantity demanded / % change in price ...

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