# Chapter5 - Mgnt 6005 Homework Chptr 5 P5.4 Optimal Pricing...

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Mgnt 6005 Homework Chptr 5 P5.4 Optimal Pricing. In an effort to reduce excess end-of-the-model-year inventory, Harrison Ford offered a 1% discount off the average price of 4WD Escape Limited SUVs sold during the month of August. Customer response was wildly enthusiastic, with unit sales rising by 50% over the previous month's level. A. Calculate the point price elasticity of demand for Harrison Ford 4WD Escape Limited SUVs sold during the month of August. B. Calculate the profit-maximizing price per unit if Harrison Ford has an average wholesale (invoice) cost of \$27,600 and incurs marginal selling costs of \$330 per unit. P5.4 SOLUTION A. ε P = Percentage change in quantity Percentage change in price = 0.500 -0.01 = -50 (Elastic) B. The profit-maximizing price can be found using the optimal price formula: P = P MC 1 (1 + ) ε = \$27,600 + \$330 1 ) -50 = \$28,500

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P5.5 Cross-Price Elasticity . The South Beach Cafe recently reduced appetizer prices from \$10 to \$6 for afternoon A early bird @ customers and enjoyed a resulting increase in sales from 60 to 180 orders per day. Beverage sales also increased from 30 to 150 units per day. A. Calculate the arc price elasticity of demand for appetizers.
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Chapter5 - Mgnt 6005 Homework Chptr 5 P5.4 Optimal Pricing...

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