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Problem A-4 The Economists' Approach to Pricing [LOA-1]
The postal service of St. Vincent, an island in the West Indies, obtains a significant portion of its revenues from sales of special souvenir sheets to stamp collectors. The souvenir sheets usually contain several high-value St. Vincent stamps depicting a common theme, such as the life of Princess Diana. The souvenir sheets are designed and printed for the postal service by Imperial Printing, a stamp agency service company in the United Kingdom. The souvenir sheets cost the postal service $1.65 each. St. Vincent has been selling these souvenir sheets for $8.00 each and ordinarily sells about 70,000 units. To test the market, the postal service recently priced a new souvenir sheet at $9.00 and sales dropped to 60,000 units.
Required:
1a. Calculate the contribution margin for sale price of $8.00 each or $9.00 each?
1b.Does the postal service of St. Vincent make more money selling souvenir sheets for $8.00 each or $9.00 each?
| $8.00 | |
| $9.00 |
2. Estimate the price elasticity of demand for the souvenir sheets. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 4 decimal places.)
3. Estimate the profit-maximizing price for souvenir sheets. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
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