Suppose that econometricians at Hallmark Cards determine that the price elasticity of demand for greeting cards is -2. a. If Hallmark's marginal cost of producing cards is constant and equal to $1.00, use the Lerner index to determine what price Hallmark should charge to maximize profit. b. Hallmark hires you to estimate the price elasticity of demand faced by its archrival, American Greetings. Hallmark estimates that American's marginal cost of producing a greeting card is $1.22. You note that American's cards sell for an average of $3.25. Assuming that American Greetings is maximizing profit, calculate their price elasticity of demand.

Suppose that econometricians at Hallmark Cards determine that the price elasticity of demand for greeting cards is -2. a. If Hallmark's marginal cost of producing cards is constant and equal to $1.00, use the Lerner index to determine what price Hallmark should charge to maximize profit. b. Hallmark hires you to estimate the price elasticity of demand faced by its archrival, American Greetings. Hallmark estimates that American's marginal cost of producing a greeting card is $1.22. You note that American's cards sell for an average of $3.25. Assuming that American Greetings is maximizing profit, calculate their price elasticity of demand.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter11: Price And Output Determination: Monopoly And Dominant Firms

Section: Chapter Questions

Problem 4E

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