A local newspaper currently sells for $1.50 per week and has a circulation of 80,000 subscribers. Advertising sells for 250/page, and the paper currently sells 350 pages per week (50 pages/day). The management is looking for ways to increase profit. It is estimated that an increase of 10 cents/week in the subscription price will cause a drop of 5,000 subscribers. Increasing the price of advertising by $100/page will cause the paper to lose approximately 50 pages of advertising in a week. The loss of advertising will also affect circulations, since one of the reasons people buy the newspaper is the advertisements. It is estimated that a loss of 50 pages of advertisements per week will reduce circulation by 1,000 subscribers Required:
a. Find the weekly subscription price and the advertising price that will maximize profit.
b. Examine the sensitivity of your conclusions in part (a) to the assumption of 5,000 lost sales when the price of the paper increases by ten cents.