Assume that the income statement for Tolkien Transport last month is as follows:

Revenue (500 customers*2000)	1,000,000
Less variable expenses	410,000
Contribution Margin	590,000
Fixed Costs	530,000
Net Profit	60,000

Note: The revenue given is calculated by multiplying number of customers last month (500) by 2,000 the average price for transportation services

1. calculate the price elasticity of demand for its transportation service if Tolkien Transports marketing team is convinced that a 15% reduction in the selling price would cause customer numbers this month to increase by 150 units(3 marks)
2. Calculate the profit-maximizing mark-up on variable costs and use this to estimate the profit-maximizing price for the transportation service. Based on this, what advice would you give Tolkien?(5 marks)
3. The absorption costing approach represents an alternative cost-plus pricing method. Explain how Tolkien would this approach to determine the price of its transportation service, highlighting the advantages and disadvantages compared to the pricing method outlined in part (b).

(6 marks)