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Thus, the optimal retail price would fall by $2 following a $1 reduction in The Kingfish's relevant marginal costs.

Equation 5.11 can serve as the basis for calculating profit-maximizing prices under current cost and market-demand conditions, as well as under a variety of circumstances. Table 5.3 shows how profit-maximizing prices vary for a product with a $25 marginal cost as the point price elasticity of demand varies. Note that the less elastic the demand, the greater the difference between the optimal price and marginal cost. Conversely, as the absolute value of the price elasticity of demand increases (that is, as demand becomes more price elastic), the profit-maximizing price gets closer and closer to marginal cost.

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