Demand Elasticity :sample problem
The non-customer demand for an ATM transactions is Q = 19,000 - 6,000P. Right now the company handles 10,000 non-customer ATM transactions per day at a fee of $1.50.
a. What is the own price elasticity for ATM fees charged to non-customers? At the current ATM fee, should you raise or lower your ATM fees? Why?
b. What should your new ATM fee be if your marginal cost of servicing an ATM transaction is $0 (zero) and you are only considering maximizing profits derived from ATM fees?