3. As a budding entrepreneur, you have purchased a small bakery. You have engage

Question

3. As a budding entrepreneur, you have purchased a small bakery. You have engaged in a market study to categorize your customers’ willingness to pay for a donut/coffee combo into 9 equal sized groups: ($3.00, $2.75, $2.50, $2.25, $2.00, $1.75, $1.50, $1.25, $1.00). [This means that one group of customers is willing to pay a maximum of $3.00 for a donut+coffee, another equal-sized group is willing to pay a maximum of $2.75, a third equal-sized group will pay a maximum of $2.50, and so on.] Each group has 100 customers so there is maximum potential for 900 customers. All of your costs are fixed except labor and materials, which cost $1.10 per donut/coffee combo.
a. What price should you charge for a donut/coffee combo?

Explanation / Answer

The price want to charge is what gives the highest profit which could be calculated using (price-cost)(# of customers will to pay that price) = profit For all 9 prices as you drop the price 100 more people would be willing to pay and the cost remain at $1.10 (3.00-1.1)(100)=$190 (2.75-1.1)(200)=$330 (2.50-1.1)(300)=$420 (2.25-1.1)(400)=$460 (2.00-1.1)(500)=$450 (1.75-1.1)(600)=$390 (1.50-1.1)(700)=$280 (1.25-1.1)(800)=$120 (1.00-1.1)(900)=-$90 The highest profit is $460 so you should set price at $2.25

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.