The postal service of Caicos, an island in the Caribbean, obtains a significant portion of its...

 

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The postal service of Caicos, an island in the Caribbean, obtains a significant portion of its revenues from sale of special souvenir sheets to stamp collectors. The souvenir sheets usually contain several high-value Caicos stamps depicting a common theme. 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 £1.5 each. Caicos has been selling these souvenir sheets for £16.00 each and ordinarily sells about 110,000 units. To test the market, the postal service recently priced a new souvenir sheet at £17.00 and sales dropped to 88,000 units. 1. Does the postal service of Caicos make more profit selling souvenir sheets for £16.00 or £17.00 each? (6 marks) 2. Estimate the price elasticity of demand for the souvenir sheets. (6 marks) 3. Estimate the profit-maximizing price for souvenir sheets. (6 marks) 4. If Imperial Printing increases the price it charges to the Caicos postal service for souvenir sheets to £3.00 each, how much should the Caicos postal service charge its customers for the souvenir sheets? Comment on your answer. (7 marks) The postal service of Caicos, an island in the Caribbean, obtains a significant portion of its revenues from sale of special souvenir sheets to stamp collectors. The souvenir sheets usually contain several high-value Caicos stamps depicting a common theme. 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 £1.5 each. Caicos has been selling these souvenir sheets for £16.00 each and ordinarily sells about 110,000 units. To test the market, the postal service recently priced a new souvenir sheet at £17.00 and sales dropped to 88,000 units. 1. Does the postal service of Caicos make more profit selling souvenir sheets for £16.00 or £17.00 each? (6 marks) 2. Estimate the price elasticity of demand for the souvenir sheets. (6 marks) 3. Estimate the profit-maximizing price for souvenir sheets. (6 marks) 4. If Imperial Printing increases the price it charges to the Caicos postal service for souvenir sheets to £3.00 each, how much should the Caicos postal service charge its customers for the souvenir sheets? Comment on your answer. (7 marks)

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