Casey's General Stores, Inc. is a convenience store chain based in Ankey, IA which has convenience...

 

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Casey's General Stores, Inc. is a convenience store chain based in Ankey, IA which has convenience marts all over the midwest. In small towns, there may only be 1 or two gas stations; however, in larger towns many gas stations compete with each other. One signature of gas stations is that prices per gallon are displayed on large signs making it easy for customers to compare prices and select the cheapest station. Many chains, like Casey's, have very loyal customers so when they have slightly higher prices, they don't lose all business. Suppose you are in charge of pricing products at a convenience store similar to Casey's in a larger town with a number of gas stations and convenience marts. You are provided with the elasticity and marginal cost information. Product Gasoline Quarts of Oil Bottled Water Bottled Soda Ice Cream Bars Chips Cheeseburgers Pizza MC 2.1 0.5 0.25 0.75 1 1.25 2 1.5 Price Elasticity 4 1.1 1.2 1.4 2 2.15 2.75 3.05 Price Markup a) Given the marginal cost and price elasticity for each product, please calculate the markup and the price you should charge for each product using Excel. (30 pts) b) Why is the price of elasticity of gas relatively high? (5 pts) c) What is the most likely reason other products have lower price elasticities than the price elasticity of gas? (5 pts) d) What is the relationship between elasticity and the amount of markup a firm can place on a product? Why? (10 pts) Casey's General Stores, Inc. is a convenience store chain based in Ankey, IA which has convenience marts all over the midwest. In small towns, there may only be 1 or two gas stations; however, in larger towns many gas stations compete with each other. One signature of gas stations is that prices per gallon are displayed on large signs making it easy for customers to compare prices and select the cheapest station. Many chains, like Casey's, have very loyal customers so when they have slightly higher prices, they don't lose all business. Suppose you are in charge of pricing products at a convenience store similar to Casey's in a larger town with a number of gas stations and convenience marts. You are provided with the elasticity and marginal cost information. Product Gasoline Quarts of Oil Bottled Water Bottled Soda Ice Cream Bars Chips Cheeseburgers Pizza MC 2.1 0.5 0.25 0.75 1 1.25 2 1.5 Price Elasticity 4 1.1 1.2 1.4 2 2.15 2.75 3.05 Price Markup a) Given the marginal cost and price elasticity for each product, please calculate the markup and the price you should charge for each product using Excel. (30 pts) b) Why is the price of elasticity of gas relatively high? (5 pts) c) What is the most likely reason other products have lower price elasticities than the price elasticity of gas? (5 pts) d) What is the relationship between elasticity and the amount of markup a firm can place on a product? Why? (10 pts)

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