Question

Insta Print offers same-day developing services for all types of film. The firm's Chicago franchise processed 1,500 packages of film last month when it charged a price of $5.00 per package. The national company has embarked on an ambitious plan to increase sales by cutting prices to $4.75 per package. Monthly sales rose to 1,750 at the Chicago franchise. Each package of film requires $1.50 in paper and chemicals, and takes 20 minutes of labor time. Insta Print pays its employees $6.00 an hour. Labor and materials (paper and chemicals) are the only variable costs associated with the film processing. a. Compute and interpret the arc price elasticity of demand for film processing. b. What is the profit-maximizing markup on film processing? What price should the firm charge?

Answer 1

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