Harold’s Flowers is a small neighborhood florist shop. Harold sells flowers for bouquets, and he also prepares and delivers flower arrangements.
A. Harold is trying to decide how much to charge for a new type of rose that wholesales for $0.40 per bud. He ran a special on a similar rose last month and discovered that a 20% discount on the usual price increased sales by about 35%. What would you suggest as a starting price for the rose? Explain.
B. Harold has been wondering whether he has been charging the right prices on some of his specialty bouquets. He has been using a markup for all specialty items of 200% (i.e., he charges three times wholesale cost). Harold estimates that a 10% increase in price on such items would decrease his unit sales by about 12%. Perform calculations to estimate a profit-maximizing markup. Based on your calculation, do you think he should increase or decrease his markup? Explain.