# In 1987, a company called Burroughs-Wellcome introduced its anti-AIDS drug AZT and an...

## Question:

## Optimal price:

The optimal price is calculated as the ratio of marginal cost to elasticity. It rises with the increase in marginal cost, and it falls with a decrease in marginal cost. It means a direct relationship exists between them.

## Answer and Explanation: 1

Here

Ed = Elasticity of demand

Per = Percentage

QD = Quantity demanded

P = Price

Optimal Price = OP

{eq}OP = \frac{MC}{1+\frac{1}{Ed}} {/eq}

{eq}12000 = \frac{100}{1+\frac{1}{Ed}} {/eq}

Ed = 1.0084

{eq}Ed = \frac{Per\ change\ in\ QD}{Per\ change\ in\ P} {/eq}

{eq}1.0084 = \frac{Per\ change\ in\ QD}{10} {/eq}

Per change in QD = 10.84

As the price increases by 10 percent then quantity demanded decreases by 10.84 percent.

#### Learn more about this topic:

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Chapter 3 / Lesson 7Understand what elasticity of demand is and discover different types of elasticity of demand. Learn how it is measured and review the elasticity of demand formula.