The postal service of St. Vincent, an island in the West Indies, obtains a significant portion of its revenues from sales of special souvenir sheets to stamp collectors. The souvenir sheets usually contain several high-value St. Vincent stamps depicting a common theme, such as the life of Princess Diana. The souvenir sheets are designed and printed for the postal service by Imperial Printing, a stamp agency service company in the United Kingdom. The souvenir sheets cost the postal service $0.80 each. (The currency in St. Vincent is the East Caribbean dollar) St. Vincent has been selling these souvenir sheets for $7.00 each and ordinarily sells about 100,000 units. To test the market, the postal service recently priced a new souvenir sheet at $8.00 and sales dropped to 85,000 units.

Required:

1.         Does the postal service of St. Vincent make more money selling souvenir sheets for $7.00 each or $8.00 each?

2.         Estimate the price elasticity of demand for the souvenir sheets.

3.         Estimate the profit-maximizing price for souvenir sheets.

4.         If Imperial Printing increases the price it charges to the St. Vincent postal service for souvenir sheets to $1.00 each, how much should the St. Vincent postal service charge its customers for the souvenir sheets?