Managerial Accounting 14th Edition by Ray Garrison ,Eric Noreen ,Peter Brewer 4

Exercise 1

The E conomist s App roach to Pric ing
Kimio Nakimura owns an ice cream stand that she operates during the summer months in Jackson Hole, Wyoming. Her store caters primarily to tourists passing through town on their way to Yellowstone National Park.
Kimio is unsure of how she should price her ice cream cones and has experimented with two prices in successive weeks during the busy August season. The number of people who entered the store was roughly the same each week. During the first week, she priced the cones at $1.79 and 860 cones were sold, During the second week. she priced the cones at $1.39 and 1.340 cones were sold, The variable cost of a cone is $0.41 and consists solely of the costs of the ice cream and of the cone itself. The fixed expenses of the ice cream stand are $425 per week.
Req uired :
1. Did Kimio make more money selling the cones fur $1.79 or for $1.39
2. Estimate the price elasticity of demand for the ice cream cones.
3. Estimate the profit-maximizing price for ice cream cones.