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Why do small convenience stores which are often open 24-7 typically charge higher prices than supermarkets?  b. Why are designer label jeans typically more expensive than 'mass-market' jeans

Why do small convenience stores which are often open 24-7 typically charge higher prices than supermarkets?  b. Why are designer label jeans typically more expensive than 'mass-market' jeans

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Refer to Example 10.3 - 'Markup Pricing: Supermarkets to Designer Jeans'

a. Why do small convenience stores which are often open 24-7 typically charge higher prices than supermarkets? 

b. Why are designer label jeans typically more expensive than 'mass-market' jeans?

EXAMPLE 10.3 MARKUP PRICING: SUPERMARKETS TO DESIGNER JEANS Although the elasticity of market demand for food is small (about -1), no single supermarket can raise its prices very much without losing customers to other stores. The elasticity of demand for any one supermarket is often as large as -10. We find P = MC/(1 - 0.1) = MC/(0.9) = (1.11)MC. %3D The manager of a typical supermarket should set prices about 11 percent above marginal cost. Small convenience stores typically charge higher prices because its customers are generally less price sensitive. Because the elasticity of demand for a convenience store is about -5, the markup equation implies that its prices should be about 25 percent above marginal cost. With designer jeans, demand elasticities in the range of -2 to -3 are typical. This means that price should be 50 to 100 percent higher than marginal cost.
Transcribed Image Text:EXAMPLE 10.3 MARKUP PRICING: SUPERMARKETS TO DESIGNER JEANS Although the elasticity of market demand for food is small (about -1), no single supermarket can raise its prices very much without losing customers to other stores. The elasticity of demand for any one supermarket is often as large as -10. We find P = MC/(1 - 0.1) = MC/(0.9) = (1.11)MC. %3D The manager of a typical supermarket should set prices about 11 percent above marginal cost. Small convenience stores typically charge higher prices because its customers are generally less price sensitive. Because the elasticity of demand for a convenience store is about -5, the markup equation implies that its prices should be about 25 percent above marginal cost. With designer jeans, demand elasticities in the range of -2 to -3 are typical. This means that price should be 50 to 100 percent higher than marginal cost.
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