Exercise 8-4. Profit-Maximizing Price [Lo 1]

The editor of Spunk magazine is considering three alternative prices for her new monthly periodical. Her estimate of price and quantity demanded are:

Price Quantity Demanded

$7.95 25,000

$6.95 31,000

$5.95 37,000

Monthly costs of producing and delivering the magazine include $95,000 of fixed costs and vari- able costs of $2.20 per issue.

Which price will yield the largest monthly profit?