Problem:
Sunny Valley Orchards is reevaluating the pricing of its fresh-squeezed orange juice in half-gallon containers. Variable costs per half-gallon container of fresh-squeezed orange juice are $1.50. Based on Sunny Valley's market study, the management has determined that the price per half gallon should be between $2.50 and $3.
Considering only prices in increments of 5 cents, which price should Sunny Valley choose to maximize its contribution margin from sales of half-gallon fresh-squeezed orange juice?
Price per Half Gallon Estimated Demand(Half-Gallon Units)
$2.50 75,000
2.55 72,500
2.60 70,000
2.65 67,500
2.70 65,000
2.75 62,500
2.80 60,500
2.85 57,500
2.90 55,000
2.95 52,500
3.00 50,000