Nichnols Corporation's Marketing Manager Believes That Every 6% Decrease in the Selling

Essay

Nichnols Corporation's marketing manager believes that every 6% decrease in the selling price of one of the company's products would lead to a 18% increase in the product's total unit sales. The product's absorption costing unit product cost is $10.10. The variable production cost is $1.70 per unit and the variable selling and administrative cost is $1.60.
Required:
a. Compute the product's price elasticity of demand as defined in the text.
b. Compute the product's profit-maximizing price according to the formula in the text.