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1) The Hanover Manufacturing Company believes that the demand curve for its product is P = 5 - Q
Where P is the price of its product (in dollars) and Q is the number of millions of units of its product sold per day. It is currently charging a price of $1 per unit for its product.
a) Evaluate the wisdom of the firm's pricing policy.
b) A marketing specialist says that the price elasticity of demand for the firm's product is 1.0. Is this correct?
2) The marketing manager of the Aztec Enterprises must formulate a recommendation concerning the price to be charged for a new product. According to the best available estimates, the marginal cost of the new product will be $18, and the price elasticity of demand for this product will be 3.0.
a) What recommendation should she make, if Aztec wants to maximize profit?
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