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Mgnt 6005 Homework Chptr 5
P5.4
Optimal Pricing.
In an effort to reduce excess endofthemodelyear 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 profitmaximizing 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 profitmaximizing 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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View Full DocumentP5.5
CrossPrice 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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 Spring '11
 MaxNorth

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