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Problem A-4 The Economists' Approach to Pricing [LOA-1] The postal service of St. Vincent, an island in the West Indies, obtains a significant portion of
Problem A-4 The Economists' Approach to Pricing [LOA-1] The postal service of St. Vincent, an island in the West Indies, obtains a significant portion of its revenues from sales of special souvenir sheets to stamp collectors. The souvenir sheets usually contain several high-value St. Vincent stamps depicting a common theme, such as the life of Princess Diana. The souvenir sheets are designed and printed for the postal service by Imperial Printing, a stamp agency service company in the United Kingdom. The souvenir sheets cost the postal service $0.95 each. St. Vincent has been selling these souvenir sheets for $6.00 each and ordinarily sells about 57,000 units. To test the market, the postal service recently priced a new souvenir sheet at $7.00 and sales dropped to 47,000 units. Required: 1a. Calculate the contribution margin for sale price of $6.00 each or $7.00 each? $6.00 Price 57,000 $7.00 Price 47,000 Unit sales Sales $ 329,000 342,000 $ 54,150 287,850 $ Cost of goods sold Contribution margin $ 44,650 284,350 1b.Does the postal service of St. Vincent make more money selling souvenir sheets for $6.00 each or $7.00 each? $6.00 $7.00 2. Estimate the price elasticity of demand for the souvenir sheets. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 4 decimal places.) Price elasticity of demand 3. Estimate the profit-maximizing price for souvenir sheets. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Profit-maximizing price
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