1. Estimated Demand. You are the manager of a firm that sells packs of coffee pods for coffee makers. You typically sell the packs for $24 and sell an average of 2,470 packs per month. You decide to raise the price to $28 per pack. When you do this your monthly sales fall to 1,482 packs per month. a. Assuming that your firm’s demand function is linear (i.e., takes the form QP=a-bP), calculate the linear demand function for the packs 2. Markups and elasticities. The marginal cost (MC) of producing your product is $16 a. Using the estimated demand curve from the previous question, calculate the point price elasticities of demand at the two price from question 1 b. Use the markups and elasticities and indicate whether the two prices are higher or lower than the profit maximizing price.
1. Estimated Demand. You are the manager of a firm that sells packs of coffee pods for coffee makers. You typically sell the packs for $24 and sell an average of 2,470 packs per month. You decide to raise the price to $28 per pack. When you do this your monthly sales fall to 1,482 packs per month.
a. Assuming that your firm’s demand function is linear (i.e., takes the form QP=a-bP), calculate the linear demand function for the packs
2. Markups and elasticities. The marginal cost (MC) of producing your product is $16
a. Using the estimated demand curve from the previous question, calculate the point price
b. Use the markups and elasticities and indicate whether the two prices are higher or lower than the profit maximizing price.
NOTE: YOU DO NOT NEED TO CALCULATE THE PROFIT MAXIMIZING PRICE YET.
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