Hanson & Daughters produces a premium label apple juice to wholesalers at a current price of $7.00 per 5-gallon container. Costs for a recent month, in which 100,000 5-gallon containers were produced and sold, appear below:

Hanson & Daughters’ customers are loyal. Recently, a 10% increase in wholesale price resulted in only a 10% decrease in gallons sold.

A. Calculate the price elasticity of demand.
B. Calculate the profit-maximizing price.
C. Explain why the management of Hanson & Daughters cannot be certain that another 10% price increase would cause only another 10% decrease in gallons sold.
D. Provide possible reasons why so many customers were willing to continue purchasing the apple juice when prices increased by 10%. List as many reasons as you can.
E. Describe the assumptions underlying the profit-maximizing price you calculated in part (B). How realistic are these assumptions for Hanson & Daughters? What might occur if these assumptions are not met for Hanson & Daughters?
F. What would you recommend to Hanson & Daughters concerning its price for apple juice? Explain yourreasoning.

  • CreatedJanuary 26, 2015
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