3. Suppose a small grocery store was selling 300 units per week of particular SKU priced...

  

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3. Suppose a small grocery store was selling 300 units per week of particular SKU priced at $4.50. Further, suppose that this item's VCs were $3.60, there were incremental labor costs of $2 to implement a price change on this item, and this item warranted a contribution- margin adjustment for complements of $0.75. (a) Given this information, use the GBE algorithm (illustrated in Figure 17.7) to calculate the EBE for a 5% price decrease. (b) If the price elasticity module of the algorithm indicated that the market's price elasticity was -2.0, would the price-increase module be activated or the price-decrease module? Explain your reasoning. (c) Assuming your answer to Part (b), describe the steps that would be taken by the GBE algorithm to arrive at a profit-maximizing price in this situation. When th is run again P. P 7 curert price change (+1 testing increment) ACM (PVC)-(PVC) ACM X BS numerator AFC-(ACM x BS) 1 CM+$Adj 41 denominator BE numerator / denominator ↓ E%BE/% price change E>E? yes no Keep decreasing P until E<E Keep increasing P until E The P before the last decrease is P www The P before the last increase is Prew Variable costs Base sales A Fixed costs Interactions Price elasticity P-P Pice-decrease mode ✓ Algorithm for price modification through use of the GBE formula Pro-ass mode Figure 17.7 3. Suppose a small grocery store was selling 300 units per week of particular SKU priced at $4.50. Further, suppose that this item's VCs were $3.60, there were incremental labor costs of $2 to implement a price change on this item, and this item warranted a contribution- margin adjustment for complements of $0.75. (a) Given this information, use the GBE algorithm (illustrated in Figure 17.7) to calculate the EBE for a 5% price decrease. (b) If the price elasticity module of the algorithm indicated that the market's price elasticity was -2.0, would the price-increase module be activated or the price-decrease module? Explain your reasoning. (c) Assuming your answer to Part (b), describe the steps that would be taken by the GBE algorithm to arrive at a profit-maximizing price in this situation. When th is run again P. P 7 curert price change (+1 testing increment) ACM (PVC)-(PVC) ACM X BS numerator AFC-(ACM x BS) 1 CM+$Adj 41 denominator BE numerator / denominator ↓ E%BE/% price change E>E? yes no Keep decreasing P until E<E Keep increasing P until E The P before the last decrease is P www The P before the last increase is Prew Variable costs Base sales A Fixed costs Interactions Price elasticity P-P Pice-decrease mode ✓ Algorithm for price modification through use of the GBE formula Pro-ass mode Figure 17.7

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a The EBE for a 5 price decrease can be estimated using the GBE algorithm by calculating The new selling price would be 450 x 095 4275 the new variabl... View the full answer