Question

The postal service of St. Vincent, an island in the West Indies, obtains a significant portion of its revenues from sales of special souvenir sheets to stamp collectors. The souvenir sheets usually contain several high-value St. Vincent stamps depicting a common theme, such as the life of Princess Diana. The souvenir sheets are designed and printed for the postal service by Imperial Printing, a stamp agency service company in the United Kingdom. The souvenir sheets cost the postal service $0.80 each. St. Vincent has been selling these souvenir sheets for $9.00 each and ordinarily sells about 54,000 units. To test the market, the postal service recently priced a new souvenir sheet at $10.00 and sales dropped to 44,000 units.

Estimate the price elasticity of demand for the souvenir sheets. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 4 decimal places.)

Estimate the profit-maximizing price for souvenir sheets.

Answer 1