(A) In each of the following situations, what type of pricing strategy would typ
ID: 2729685 • Letter: #
Question
(A) In each of the following situations, what type of pricing strategy would typically be appropriate? Explain your reasoning. (10 pts.) a. Market demand is inelastic and company demand is elastic. b. A firm has a distinct quality advantage. c. A firm is not producing at full capacity and company demand is elastic. (B) A retailer notes that a line of woks is selling at a rate of 80 per week. When the price is cut from $36 to $30, sales increased to 110 per week. (a) What is the price elasticity of demand? (b) What happens to the revenue? (c) What price should the retailer place on the woks and why? (C) If a retailer is making 35% margin on its selling price ($42), what is its cost? (10 pts).
Explanation / Answer
B. a Price elasticity of demand = Change in quantity/change in price
Where, Change in Quantity = ((New Quantity - Original Quantity) / Original Quantity)
Change in Price = ((New Price - Original Price) / Original Price)
110-80/80= 0.375; 30-36/36 -0.1667
Ped = 0.375/(-0.1667) = -2.25
b (110*30)-(80*36) =420 increase in revenue
c Retailer should place P = MC(Ped/PED+1), wher mc is marginal cost, PED is price elasticity of demand
whch is optimal price having maximum revenue
C Margin = Selling Price*35%
= 42*35% = 14.7
Cost = SP-Margin
42-14.7 = 27.3
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.