Essay
Markup on Price. Carpet Magic, Inc., provides professional, in-the-home carpet cleaning services to residential customers in the Binghamton, New York area. The company recently raised its service price from $94.50 to $121.50 per room. As a result, sales fell to 5,000 from 7,000 units in the year-earlier period.
A. Calculate the arc price elasticity of demand for Carpet Magic service.
B. Assume that the arc price elasticity (from part A) is the best available estimate of the point price elasticity of demand. If marginal cost is $30.375 per unit for labor and materials, calculate Carpet Magic's optimal markup on price and its optimal price.
Correct Answer:
Verified
Correct Answer:
Verified
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