Amalgamated Popcorn, Inc. is a fairly small firm selling bags of flavored gourmet popcorn in a...

Q_P = 500 - 100P_P + 1.25A - 20P_S + 2I

where Q_P = unit sales of popcorn bags, P_P = price of bags in dollars, A = advertising expenses, P_S = price of soda pop sold at your stand in dollars, I = per capita income of customers in thousands of dollars.
You are currently charging $1 per bag of popcorn, spending $200 in advertising, charging $1 for a soda pop, and per capita income is $22,000.

a. Compute the elasticity coefficients for price, income, and cross-price.
b. You are currently paying $.45 for popcorn (including cost for the corn, cost to pop, and bag) and currently charging $1 per bag of popcorn. Is this the profit-maximizing price? Explain.

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Expert Solution

Rahul Sunny answered 1 year ago

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