Optimal price based on the pricing formula

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When ShorTech introduced its Quadrant mobile phone, it had few competitors and set a price of $500 when its marginal cost per unit was $350. The economics consulting firm it hired to estimate the demand elasticity confirmed this was the optimal price based on the pricing formula (P - MC) / P = 1 / |e|. Since then, competitors have entered the market making customers more price conscious. When it rehired the economics consulting firm to estimate the demand elasticity, it found that demand had become more elastic at -4. Also, ShorTech has managed to lower its marginal cost per unit to $300. What price should ShorTech charge now? Provide support for how you determined your answer.

Reference no: EM13858688

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