The price elasticity of toy cars that you sell is –4.00; you currently charge a price of $9.00 and the marginal cost of toy cars is $8.00.

a. Calculate the marginal revenue from the given information and decide whether you should increase output (sell more) . Increase or decrease output?

b. Do you need to increase the price or decrease the price? Increase or decrease output?

c. Using the above information you should be able to find the price that will maximize your profits.