Question: Question 6:

Company sells chemicals to various industries.

30,000 gallons per year average price $15 per gallon

Fixed cost $90,000 per year

Variable cost $180,000

Research dept estimates 15% increase output would not affect fixed cost but would reduce average variable cost by 60 cents per gallon..

Marketing estimates arc elasticity of demand to be -2.0

a. How much of a price cut would it take to achieve 15% increase in sales?

b. Evaluate impact of price cut on

Total revenue

Total cost

Total profit