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sales volume
00 units at a
e of $2,000
PDQ profitability
increases above
baseline levels when the Price
price per unit falls at rang
least 4% base
PDQ Total profits as a function of price and elasticity of demand
2.9 2.66 2.4
to decline at steeper
e to lower contribution
Millions
fixed costs 70
50
Total profit becom
30 at price increase
~10%
10
-30
Profit maximizing prices:
- Ed = 2.9; optimal price = -25%
- Ed = 2.66; optimal price = -23% -50
- Ed = 2.4; optimal price = -21%
-70
-90
% Change in baseline price
BE with no IFC BE with IFC Elasticity 2.9 Elasticity 2.66 Elasticity 2.4