What price should you set for a product? This week we’re learning a useful numerical rule. You’re brought in to consult for a business that currently has a Marginal Cost of $5 for its product. It sells its product to customers for $9 per unit and the estimated price elasticity of demand is -1.5. Is the current price optimal? Should it be raised or lower
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What
You’re brought in to consult for a business that currently has a Marginal Cost of $5 for its product.
It sells its product to customers for $9 per unit and the estimated price
Is the current price optimal? Should it be raised or lowered? To what? Support your answer using the markup pricing equations from the text. (MR = P*(1+(1/elasticity)) combined with the MR=MC rule).
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- Your firm’s research department has estimated the income elasticity of demand for nonfed ground beef to be −1.94. You have just read in The Wall Street Journal that due to an upturn in the economy, consumer incomes are expected to rise by 10 percent over the next three years. As a manager of a meat-processing plant, how will this forecast affect your purchases of nonfed cattle?Your firm’s research department has estimated the income elasticity of demand for non fed ground beef to be -1.94. You have just read in the Wall Street Journal that due to an upturn in the economy, consumer incomes are expected to rise by 10 percent over the next three years. As a manager of a meat-processing plant, how will this forecast affect your purchases of non fed cattle?Online the timing and tailoring of prices to specific products is the key to successful pricing in online markets. And " Thanks to the ready availability of data in online markets, a pricing manager can easily approximate the elasticity of demands for the different products it sells online." Assuming a 10 percent decrease in price increases sales by 30 percent, calculate the price elasticity of demand? If the wholesale price of the online product is $50 and sells at a price comparison site that charges $0.50 per click and boasts a conversation rate of 5 percent ( an average of 20 percent clicks are needed to generate sale), the incremental cost of each sale is $50. What price should you change for the product? What is the markup? B) . The authors assert that price sensitivity is affected by (1) product cycle, and (2) number of competitors. In fact, " When the number of competing sellers doubles, a firm's elasticity of demand is expected to double ( you should be able to verify this…
- ONLY ANSWER QUESTION #2 1. Online the timing and tailoring of prices to specific models of products is the key to successful pricing in online markets. And “Thanks to the ready availability of data in online markets, a pricing manager can easily approximate the elasticity of demands for the different products it sells online.”Assuming a 10 percent decrease in price increases sales by 28 percent, calculate the price elasticity of demand? If the wholesale price of the online product is $50 and sells at a price comparison site that charges $.50 per click and boasts a conversion rate of 5 percent (an average of 20 clicks are needed to generate a sale). What price should you charge for the product? What is the optimal markup on cost? 2. The authors assert that price sensitivity is affected by (1) product life cycles, and (2) numbers of competitors. In fact, “when the number of competing sellers doubles, a firm’s elasticity of demand is expected to double (and you should be able to verify…Suppose you are in charge of pricing at your company and you wish to increase revenues from your product line. Your company's chief economist informs you that the price elasticity of demand of your product line is estimated to be E = - 1.1 Based on this information, what would you do?Practice #6 Francine is a a dental floss tycoon living in Montana. She faces the following demand curve for her product: Price ( in $/unit) Quantity demanded 2.50 1000 2.20 2000 1.90 3000 1.60 4000 1.30 5000 1.00 6000 .70 7000 .40 8000 Francine has been told by her brother, who is currently taking a marketing class, that if she lowers her price by one increment(for example; changing price from .70 to .40, she will capture market share and increase total revenue. All of her advisors within the company have assured Francine that her brother's advice may be correct, BUT the above demand curve will not change. Assume that Francine knows the above demand curve will not change and is also considering her brother's advice. The prices can only change in…
- If new substitutes are developed for a product, what will likely happen to the total revenue maximizing price for that product? (You would like to control the total consumption of soft drink up to 100 bottles per year. The current two brands you drink are Pepsi and Coke. The current demand, price, elasticity, and minimum demand for Pepsi and Coke are given in below. In addition, you would like to keep equal or more demand from Pepsi due to brand loyalty. Assuming linear demand curves, what are the best price for Pepsi and Coke that can minimize your total payment? Elasticity Current price Demand Minimum demand Keep Pepsi income > = 60% of total payment Pepsi 2 2 300 20 Coke 1 3.5 220 25You own a bakery and shop that makes and sells gourmet doggie treats. You have done market research and you know with certainty that your product is a normal good, not an inferior good. The current demand function for your gourmet doggie treats is: QD = 480 -6*P which of course means the equation for your current demand curve is: P = 80 -(1/6)*Q You are opening a new shop in a new part of town, and you know that incomes in that part of town are much lower than incomes are where your shop is now. Which of the following is most likely the demand curve in your new shop? Multiple Choice O P=68- (1/6)*Q P = 102 - (1/6)*Q P=92-(1/6)*Q P = 88 - (1/6)*Q
- A phone company operates two markets. In market one, research suggest that the price elasticity is -0.4 and on the other market -1.4. The company has decided to revise prices upward on both markets by 10% this year. Comment on the decision. What alternative pricing strategy would you suggest?When you compare the absolute value of the price elasticity of demand for most products [Hint, oil is one product that works this way.] in the long run (20 years) vs absolute value of the elasticity of demand for the products in the short run (6 months), the absolute value of the long run price elasticity of demand is... [Note: we consider demand elasticity positive, even though they're technically negative. In other words, for purposes of this question, "greater" means farther away from zero] a) less than that of the short run. In the long run, this elasticity will always be very close to zero b) not zero, but less than that of the short run c) equal to that of the short run d) greater than that of the short runQUESTION 7.1 You own a miniature golf course on the boardwalk in Ocean City, New Jersey. Right next to you on the boardwalk is another miniature golf course. Your golf course has a dinosaur theme. Your competitor's course is newer and has several impressive waterfalls and original hole designs that are attractive to your avid miniature golf fan. From past experience you have determined that the own-price elasticity of demand for your golf course is -1.5. You also know that the cross-price elasticity of demand for your course with respect to your competitor's price is +0.8. You suspect that your competitor's own-price elasticity of demand is -1.5 as well, but that the cross-price elasticity of demand for his course relative to your prices is only +0.4 due to the more modern design features. Currently you charge $5.00 for a round of miniature golf and have 2,000 customers in a typical week. Your competitor charges $7.50 for a round of golf and currently has 3,000 customers in a typical…