Question
Hello, I'm having trouble answering the following questions: A company is selling 100 units per year of its single product at 1$ . It has
Hello, I'm having trouble answering the following questions:
A company is selling 100 units per year of its single product at 1$ . It has a marginal cost of 0.60$ , leaving a gross margin of 0.40$ . The fix cost is 25$ resulting in a profit of 15$ for the company. The owner of the company wonders how reactive customer demand has to be for a price reduction to 0.95 to be profitable.
What is the min demand increase needed to maintain the company's current operating profit?
At the 5% price decrease, what is the implied brake-even price elasticity of demand?
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