1. Estimated Demand. You are the manager of a firm that sells packs of coffee pods for coffee makers. You typically sell the packs for $24 and sell an average of 2,470 packs per month. You decide to raise the price to $28 per pack. When you do this your monthly sales fall to 1,482 packs per month. a. Assuming that your firm’s demand function is linear (i.e., takes the form QP=a-bP), calculate the linear demand function for the packs 2. Markups and elasticities. The marginal cost (MC) of producing your product is $16 a. Using the estimated demand curve from the previous question, calculate the point price elasticities of demand at the two price from question 1 b. Use the markups and elasticities and indicate whether the two prices are higher or lower than the profit maximizing price.
1. Estimated Demand. You are the manager of a firm that sells packs of coffee pods for coffee makers. You typically sell the packs for $24 and sell an average of 2,470 packs per month. You decide to raise the
a. Assuming that your firm’s demand function is linear (i.e., takes the form QP=a-bP), calculate the linear demand function for the packs
2. Markups and elasticities. The marginal cost (MC) of producing your product is $16
a. Using the estimated demand curve from the previous question, calculate the point price elasticities of demand at the two price from question 1
b. Use the markups and elasticities and indicate whether the two prices are higher or lower than the profit maximizing price.
NOTE: YOU DO NOT NEED TO CALCULATE THE PROFIT MAXIMIZING PRICE YET.
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