1. Cadie\'s Candy Shop (CCS) makes a special kind of candy that has become very
ID: 1187963 • Letter: 1
Question
1. Cadie's Candy Shop (CCS) makes a special kind of candy that has become very popular with its customers. The marginal cost of producing this candy is constant. It is equal to $3.5 per box.a. At a markup of 80%, what price should CCS charge for its candy?
b. Assuming that price elasticity of demand for this of kind candy is - 1.5, determine if the price CCS charges for its special candy is a profit-maximizing price. If it is not, what price should it charge? 1. Cadie's Candy Shop (CCS) makes a special kind of candy that has become very popular with its customers. The marginal cost of producing this candy is constant. It is equal to $3.5 per box.
a. At a markup of 80%, what price should CCS charge for its candy?
b. Assuming that price elasticity of demand for this of kind candy is - 1.5, determine if the price CCS charges for its special candy is a profit-maximizing price. If it is not, what price should it charge?
Explanation / Answer
a) price = variable cost + fixed cost + markup ratio = 3.5 +0.8 = 4.3
the price charged by CCS candu should be $ 4.3 per candy
b) price elasticity = -1.5 i.e if price increases one times, demand decreases 1.5 times. So, the price charges for special candy is not profit maximizing.
the price it should charge is $3.5+1.5 = $ 5 per candy
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