As the new owner of a supermarket, you have inherited a large inventory of unsol
ID: 1210958 • Letter: A
Question
As the new owner of a supermarket, you have inherited a large inventory of unsold imported Limburger cheese, and you would like to set the price so that your revenue from selling it is as large as possible. Previous sales figures of the cheese are shown in the following table. Use the sales figures for the prices S4 and $5 per pound to construct a demand function of the form q = Ae^-bp, where A and b are constants you must determine. (Round A and b to two significant digits.) Use your demand function to find the price elasticity of demand at each of the prices listed. (Round your answers to two decimal places) At what price should you sell the cheese in order to maximize monthly revenue? (Round your answer to the nearest cent.) If your total inventory of cheese amounts to only 200 pounds, and it will spoil one month from now, how should you price it in order to receive the greatest revenue? (Round your answer to the nearest cent.) Is this the same answer you got in part (c)? If not, give a brief explanation. It is a higher price than in part (c) because at a lower price you cannot satisfy the demand. It is the same price. It is a lower price than in part (c) because at a higher price the demand is not high enough.Explanation / Answer
(a) demand function is q=637.07 e-0.20p
(b)
(c) in order to maximize the revenue Marginal revenue should be equal to marginal cost and since there is already a stock MC is assumed to be zero . Then the revenue maximizing price is $5.
(d) the price required to maximize revenue with 200 pounds of cheese is $5.79.
This is a higher price than part (c) because at $5 demand is 229 which can not be satisfied. At $5.79 exactly 200 ounds of cheese is demanded and the revenue is maximized.
p=$3 E= -0.20*3= -0.60 p=$4 E= -0.20*4= -0.80 p=$5 E= -0.20*5= -1.00Related Questions
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