Reference no: EM132262381

Medical device company MedDevices, Inc. is a manufacturer of a combination insulin-pump and blood glucose monitoring device. The device, called PumpNMeter, provides insulin to diabetes patients, monitors patient's blood glucose levels and relays insulin dosing and blood glucose levels to physicians treating the patients. Patients use PumpNMeter is currently the only such device on the market. Assume that the price elasticity of demand is -0.5 for PumpNMeter. The current market price is $6,400 per device, with a total of 400,000 sold each year. At the $6,400 price, the manufacturer makes a profit of $1,400 for every device it sells.

[HINT: What are the costs to the device company for manufacturing each per pump?]

An increase in the price of one of the components needed to manufacture PumpNMeter raises the cost of production by 10%

[HINT: What are MedDevices' manufacturing costs after this price increase that they must pay for the PumpNMeter components?]

What would likely be the number of devices sold if MedDevices responds by doing the following:

a. Keeps the price at $6,400 per glucose meter

b. Raises the price by 10%  

c. Raises the price by 15%.

Which of these three pricing choices yields the greatest profit to MedDevices? How much is the profit difference between these choices?