Find the price that maximizes your profit using price elasticity of demand.
Optimal Price—
Optimal Markup—
Profit Margin—
Formula (Lerner Index):
Optimal Price = Cost × (E / (1 + E))
Where E = Price Elasticity of Demand (negative value)
How to Find the Optimal Price
Using the inverse elasticity pricing rule (Lerner condition), the profit-maximizing price depends on your marginal cost and the price elasticity of demand. More elastic demand (higher absolute value) leads to lower optimal markups.
Key Insights
Elasticity must be < -1 — You should only sell in the elastic portion of the demand curve
Higher elasticity — More price-sensitive customers, lower optimal markup
Lower elasticity — Less sensitive customers, higher markup possible