3. The optimal markup rule is (P markup (above marginal cost and expressed as a percentage...

 
 

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3. The optimal markup rule is (P markup (above marginal cost and expressed as a percentage of price) varies inversely with the price elasticity of demand for the good or service. (Remember that the firm's price cannot be profit maximizing if demand is inelastic.) 4. Price discrimination occurs when a firm sells the same good or service te different buyers at different prices (based on different price elasticities of demand). Prices in various market segments are determined according to the optimal markup rule. Questions and Problems 1. During a five-year period, the ticket sales of a city's professional basketball team have increased 30 percent at the same time that average ticket prices have risen by 50 percent. Do these changes imply an upward-sloping demand curve? Explain. 2. A retail store faces a demand equation for Roller Blades given by: = 180 - 1.5P, where Q is the number of pairs sold per month and P is the price per pair in dollars. a. The store currently charges P $80 per pair. At this price, determine the number of pairs sold. b. If management were to raise the price to $100, what would be the impact on pairs sold? On the store's revenue from Roller Blades? c. Compute the point elasticity of demand first at P $80, then at P = $100. At which price is demand more price sensitive? 3. The optimal markup rule is (P markup (above marginal cost and expressed as a percentage of price) varies inversely with the price elasticity of demand for the good or service. (Remember that the firm's price cannot be profit maximizing if demand is inelastic.) 4. Price discrimination occurs when a firm sells the same good or service te different buyers at different prices (based on different price elasticities of demand). Prices in various market segments are determined according to the optimal markup rule. Questions and Problems 1. During a five-year period, the ticket sales of a city's professional basketball team have increased 30 percent at the same time that average ticket prices have risen by 50 percent. Do these changes imply an upward-sloping demand curve? Explain. 2. A retail store faces a demand equation for Roller Blades given by: = 180 - 1.5P, where Q is the number of pairs sold per month and P is the price per pair in dollars. a. The store currently charges P $80 per pair. At this price, determine the number of pairs sold. b. If management were to raise the price to $100, what would be the impact on pairs sold? On the store's revenue from Roller Blades? c. Compute the point elasticity of demand first at P $80, then at P = $100. At which price is demand more price sensitive?

Answer rating: 100% (QA)

Q 180 15P A when P 80 Q 180 1580 Q 180 120 60 So at P80 the store can sold ... View the full answer