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h marginal cost at the initial elasticity of -2. What should the promotional price be when the elastic

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter6: Simple Pricing

Section: Chapter Questions

Problem 6.3IP

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Question

An end-of-aisle price promotion changes the price elasticity of a good from -2 to -3. Suppose the normal price is $33 , which equates marginal revenue with marginal cost at the initial elasticity of -2.

What should the promotional price be when the elasticity changes to -3 ? ( Hint : In other words, what price will equate marginal revenue and marginal cost?)

a) $ 30.60

b) $25.50

c) $33.15

d)$ 35.70

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