Mann Loronz owns an ico oroam stand at she o orates drng the summer months in wo

ID: 2586116 • Letter: M

Question

Mann Loronz owns an ico oroam stand at she o orates drng the summer months in wost Yolio stono, Montana. Hororo cators prmarly to tourats passing through town on thor way to Yellowmore Nadonal Park. Mara a sure o now she should p ca her ce cream cones and nas expenmensed win two proes in success ve weeks dun g te busy August season. The numbe of people who entered the sore was ough y te sam e ea week unn the n st week she pr ced the cones at $1.5 a and g50 cones were sod Du ng the second eek 8he p ed the ones at S1 6 a 1 co es were sold. The anable cost of 8 cone ·S 5 and consists soey of costs of me ice cream and of the coneitser The n ed expenses of the ice cream stand 8re $625 per eek. 1-. Caloulate the net operaing income for sale price of $1.90 and $1.60? (Round your dollar answers to 2 decimal places.) Cost of sales 0.0 Fiked expenses Net operaing 0.0 Did Maria make more money selinge cones for S1 90 cr tor $1.60? $1.90 $1.60 2. Estimane the price elasticity of demand for the ice cream cones.jDo not round intermediate caiculations. Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. 3. Estimate the profit-maximizing price for ice crearn cones. (Do not round intermediate caloulations. Round your answer to 2 decimal places)

Explanation / Answer

(In $)

$1.9 Price

$1.6 Price

Unit Sales

950 Cones

1400 Cones

Sales (Units * Price)

1,805

2,240

Variable cost(@$0.5 per cone)

($0.5 * Units)

475

700

Contribution margin

1,330

1,540

Fixed Cost ($625 per week)

625

Net Operating Income

705

915

1(b)

Maria makes more money by selling ice cream at $1.6 per cone as Net operating is more in that case.

(2)

Initial Price (P0) = $1.9

New Price (P1) = $1.6

I Initial Qty. (Q0) = 950

New Qty. (Q1) = 1400

Price Elasticity = [(Q1 - Q0) / (Q1 + Q0)] / [(P1 - P0) / (P1 + P0)]

= [(1400-950) / (1400+950)] / [(1.6-1.9) / (1.6+1.9)]

Price Elasticity = (2.23)