Answer to Question #295294 in Microeconomics for MD JAHID HASAN SHA

Question

If the price elasticity is -3 and RM 100 is the marginal cost of product X, what should be the optimal sale price?Hint: apply the mark-up rule

Answer 1

Here,

$MC=100\\Elasticity=-3$

The mark up rule of pricing states that,

$mark\space up ={(P−MC)\over P}={1\over Elasticity}$

${(P-100)\over P}=-{1\over3}$

$-P=3P-300$

$-4P=-300$

$P=75.5\approx76$

Therefore the Optimal Sale Price is RM 76.