Illustrate what effect will this have on its optimal price

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Reference no: EM1357322

The U.S. Cigarette industry has negotiated with congress and govt. agencies to settle liability claims against it. Cigarette companies will make fixed annual payments to the government based on historical market shares.

A manufacturer estimates its marginal cost at $1.00 per pack.

Its own price elasticity at -2, and sets its price at $2.00.

The company's settlement obligations are expected to raise its average total cost per pack by about $60. What effect will this have on its optimal price?

Reference no: EM1357322

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