1. Jacqueline has been selling 7,000 T-shirts per month for $7.00. When she increased the price to $9.00, she sold only 6,000 T-shirts.

Which of the following best approximates the price elasticity of demand?

-0.3077

-0.5538

-0.6769

-0.6154

Suppose Jacqueline's marginal cost is $4 per shirt.

Before the price change, Jacqueline's initial price markup over marginal cost was approximately (0.4286 or 0.3857 or 0.5571 or 0.4714 ) . Jacqueline's desired markup is (1.4625 or 1.7875 or 1.625 or 1.1375).

Since Jacqueline's initial markup, or actual margin, was (less or greater) than her desired margin, raising the price was (profitable or non-profitable) .

2. An end-of-aisle price promotion changes the price elasticity of a good from 2 to 3. Suppose the normal price is $40, 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 to marginal revenue and marginal cost?)

$30.00

$27.00

$39.00

$42.00