Here is the problem:
Last week, Archie Bunker's offered a 25 cent coupon on 12-packs of Diet Cola, regularly priced at $4. Coupons were used on 40% of all purchases, and resulted in an increase from 400 to 490 cases sold per week.
I know that to find Ep = % change in qty / % change in price, and the equation for optimal markup is -1/Ep + 1 = Q2-Q1/P2-P1, but I am not sure how to plug in the numbers to answer the following questions.
a. using the regular $4 price, calculate the point price elasticicty of demand for Diet Cola.
b. calculate the optimal markup on cost for Diet Cola.
c. If MC per unit is $3 plus 20 cent in handling costs, calculate the profit maximizing price on Diet Cola.
d. Using P = $4 and Q = 400 as a base and the point price elasticity of deman formula, calculate expected unit sales, revenues and profits at the profit maximizing activity level. (Note: For simplicity, assume MC = AVC).
This is all the information that was given.
Can anyone help me?
Calculate expected unit sales, revenues and profits at the profit maximizing activity level.