Tamagotchi is an egg-shaped digital pet, originally released in 1996 in Japan and in 1997 in the entire world by Bandai Co. To commemorate the twenty-fifth anniversary of Tamagotchi in the U.S., Bandai America announced that it would release a smaller version in limited quantities in 2022. These units would be produced in a factory in Japan at a marginal cost of $5 per unit, and shipping them to the U.S. would cost another $1 per unit. The company has arranged to produce 100,000 Tamagotchis and sell them at $15 dollars each over the following year.

A)Assuming that the company is pricing optimally, what is your best estimate of the elasticity of demand for Tamagotchis at their current price?

B)Shortly before the release, you get the news that due to a miscommunication, the factory in Japan has already manufactured 120,000 Tamagotchis, i.e., 20,000 more than needed. The management of Bandai America is adamant that they all need to be sold, even if it requires them to lower the price. What price would you recommend to ensure that these units are sold? Use your answer to part a to estimate the necessary decrease in price. You can assume that the demand curve is linear.

C)Before you have a chance to follow through with your recommendation, the management has a change of heart. It reasons that selling each and every unit should not be a must, because disposing of them is costless (even though they see no opportunity to sell them in a different market). Because of that, it requests that you choose whatever price you want to maximize profits given the circumstances. Would you recommend to price at $15 per unit as originally planned, or choose a higher or a lower price? Explain.