The us cigarette industry has negotiated with congress

Reference no: EM1337254

Elasticity and changes in prices

The U.S. cigarette industry has negotiated with Congress and government agencies to settle liability claims against it. Under the proposed settlement, cigarette companies will make fixed annual payments to the government based on their historic market shares. Suppose a manufacturer estimates its marginal cost at $1.00 per pack, its own price elasticity at -2, and set is 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: EM1337254

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