Arnie’s Flowers is a small Mt Macedon florist shop. Arnie sells flowers for bouquets, and she also prepares and delivers flower arrangements.

Required

(a) Arnie 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 per cent discount on the usual price increased sales by about 35 per cent. What would you suggest as a starting price for the rose? Explain.

(b) Arnie has been wondering whether he has been charging the right prices on some of her specialty bouquets. She has been using a mark-up for all specialty items of 200 per cent (that is, he charges three times wholesale cost). Arnie estimates that a 10 per cent increase in price on such items would decrease her unit sales by about 12 per cent. Perform calculations to estimate a profitmaximising mark-up. Based on your calculation, do you think he should increase or decrease her mark-up? Explain.