Question

Amalgamated Popcorn, Inc. is a fairly small firm selling bags of flavored gourmet popcorn in a popular mall. As shop owner and operator, you have observed that your daily sales tend to follow a pattern that can be stated as:

QP = 500 - 100PP + 1.25A - 20PS + 2I

where QP = unit sales of popcorn bags, PP = price of bags in dollars, A = advertising expenses, PS = price of soda pop sold at your stand in dollars, I = per capita income of customers in thousands of dollars. You are currently charging $1 per bag of popcorn, spending $200 in advertising, charging $1 for a soda pop, and per capita income is $22,000

a. Compute the elasticity coefficients for price, income, and cross-price.

b. You are currently paying $.45 for popcorn (including cost for the corn, cost to pop, and bag) and currently charging $1 per bag of popcorn. Is this the profit-maximizing price? Explain

Answer 1