Optimal Pricing
In an effort to reduce excess end-of-the-model-year inventory, Harrison Ford offered a 2.5% discount off the average list price of Focus SE sedans sold during the month of August. Customer response was enthusiastic, with unit sales rising by 10% over the previous month's level.
A. Calculate the point price elasticity of demand for Harrison Ford Focus SE sedans.
B. Calculate the profit-maximizing price per unit if Harrison Ford has an average wholesale cost of $10,000 and incurs marginal selling costs of $875 per unit.