Nguyen Corporation's Marketing Manager Believes That Every 8% Increase in the Selling

Essay

Nguyen Corporation's marketing manager believes that every 8% increase in the selling price of one of the company's products would lead to a 15% decrease in the product's total unit sales. The product's absorption costing unit product cost is $19.40. The variable production cost is $5.40 per unit and the variable selling and administrative cost is $2.20.
Required:
a. Compute the product's price elasticity of demand as defined in the text to two decimal places.
b. Compute the product's profit-maximizing price according to the formula in the text.