1. The impact of various marketing strategies on the elasticity of premium ice cream (e.g. Ben & Jerry's or Haagen-Daaz). It shows that relative to "no promotion", a strategy that combines a "feature advertisement" plus a prominent "end-of-aisle" display changes the demand elasticity (the slope of the demand curve).

Source: Tenn, Steven, Luke Froeb, and Steven Tschantz, Merger Effects When Firms Compete by Choosing Both Price and Advertising, Owen Working paper (2007). Available at SSRN:http://ssrn.com/abstract=980941

Part a: Suppose that the demand elasticity for Haagen-Daaz ice cream is -2.1 and that the profit maximizing price is $5 per pint. Solve for the implied Marginal Cost (MC) per pint.

Part b:  Now, suppose that an end-of-aisle display promotion increases the elasticity to -3.0.  Assuming no change to MC, what is the optimal sale price associated with this promotion?

Answer rating: 100% (QA)

Part a To solve for the implied Marginal Cost MC per pint we can use the s... View the full answer