A company makes rubber ducks and sells 3 million units per year. Fixed costs are $400,000 per year; variable costs per duck are $0.90, and the selling price of the ducks is $1.60 each. The company is considering changing the price, either raising or lowering price by $0.10.

Part One: Calculate the following: change in price (as a percentage of current price); current company profit; profit (in dollar and percentage terms) if price is raised and sales remain at 3 million units per year; profit (in dollar and percentage terms) if price is lowered and sales remain at 3 million units per year. Compare the change in price (as a percentage) to the change in profit (as a percentage). Why are the numbers so different?

Part two: Do you think that demand will remain at 3 million units per year if the price is lowered? If yes, what change in demand do you anticipate, and would you change the price anyway? If no, why do you think there will be no change in demand?