Chapter 12.A, Problem 2E

EXERCISE 12A-2 Customer Latitude and Pricing LO12-9

Maria Lorenzi owns an ice cream stand that she operates during the summer months in West Yellowstone, Montana. She is unsure how to price her ice cream cones and has experimented with two prices in successive weeks during the busy August season. The number of people who entered the store was roughly the same each week. During the first week, she priced the cones at $3.50 and 1,800 cones were sold During the second week, she priced the cones at $4.00 and 1,400 cones were sold The variable cost of a cone is $0.80 and consists solely of the costs of the ice cream and the cone itself. The fixed expenses of the ice cream stand are $2,675 per week.

Required:

1. What profit did Maria earn during the first week when her price was $3.50?
2. At the start of the second week, Maria increased her selling price by what percentage? What percentage did unit sales decrease? (Round your answers to one-tenth of a percent.)
3. What profit did Maria earn during the second week when her price was $4.00?
4. What was Maria’s increase (decrease) in profits from the first week to the second week?