3. Gazelle Corp, a sports shoe firm, is currently selling 800 pairs of a certain shoe per month. It is currently charging a price of £40, but this has recently been reduced from £45, because sales were only reaching 750 units per month. Its total costs are £28,000 per month, and these have risen £1500 due to the increase in sales. a) Derive the cost and demand functions for the firm, assuming these are both linear. b) Calculate the price elasticity of demand at the current price. c) Comment on the firm's existing strategy in terms of profit maximization, without doing any calculations. d) Calculate the profit-maximizing price and output. e) Calculate the amount of profit that the firm is currently foregoing.
3. Gazelle Corp, a sports shoe firm, is currently selling 800 pairs of a certain shoe per month. It is currently charging a price of £40, but this has recently been reduced from £45, because sales were only reaching 750 units per month. Its total costs are £28,000 per month, and these have risen £1500 due to the increase in sales. a) Derive the cost and demand functions for the firm, assuming these are both linear. b) Calculate the price elasticity of demand at the current price. c) Comment on the firm's existing strategy in terms of profit maximization, without doing any calculations. d) Calculate the profit-maximizing price and output. e) Calculate the amount of profit that the firm is currently foregoing.
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter14: Pricing Techniques And Analysis
Section: Chapter Questions
Problem 3E
Related questions
Question
![3. Gazelle Corp, a sports shoe firm, is
currently selling 800 pairs of a certain shoe
per month. It is currently charging a price of
£40, but this has recently been reduced from
£45, because sales were only reaching 750
units per month. Its total costs are £28,000
per month, and these have risen £1500 due to
the increase in sales.
a) Derive the cost and demand functions for
the firm, assuming these are both linear.
b) Calculate the price elasticity of demand at
the current price.
c) Comment on the firm's existing strategy in
terms of profit maximization, without doing
any calculations.
d) Calculate the profit-maximizing price and
output.
e) Calculate the amount of profit that the firm
is currently foregoing.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff8fcabfc-33a5-4e56-b31f-345720ec67be%2Fe1bf57cd-f735-4709-a915-ffa48d4f8928%2Fy98pdjn_processed.jpeg&w=3840&q=75)
Transcribed Image Text:3. Gazelle Corp, a sports shoe firm, is
currently selling 800 pairs of a certain shoe
per month. It is currently charging a price of
£40, but this has recently been reduced from
£45, because sales were only reaching 750
units per month. Its total costs are £28,000
per month, and these have risen £1500 due to
the increase in sales.
a) Derive the cost and demand functions for
the firm, assuming these are both linear.
b) Calculate the price elasticity of demand at
the current price.
c) Comment on the firm's existing strategy in
terms of profit maximization, without doing
any calculations.
d) Calculate the profit-maximizing price and
output.
e) Calculate the amount of profit that the firm
is currently foregoing.
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