You sell wristwatches. Your marginal cost and average cost for watches is $30. The demand curve for your watchesamong adults over age 50 is Q = 91,453-100P. The demand curve for your watches among adults under age 50 isQ- 31,437-100P. Round to two decimal places for all calculations below.a. Calculate the profit maximizing price and quantity for each group. What is the price elasticity of demand foradults over 50? Under 50? Explain which is your low-valuation group, and whether these results make sense.b. Contrast the profit earned in part (a) with the profit you would have earned if you had not been able to pricediscriminate. Was the price discrimination plan worthwhile? Explain.c. What is the optimal markup price for watches in both segments? Explain the calculation for optimal markup, andwhat it means.

Answered: You sell wristwatches. Your marginal…

You sell wristwatches. Your marginal Cost anu among adults over age 50 is Q = 91,453-100P. The demand curve for your watches among adul d to two derimal places for all calculations below.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Pricing

Pricing is used as a term in finance and economics, pricing is the process of fixing a value for a product or a service. Pricing establishes a value for a product or service that the customer has to pay. A business can choose from different strategies while deciding to set prices.

Question

You sell wristwatches. Your marginal cost and average cost for watches is $30. The demand curve for your watches
among adults over age 50 is Q = 91,453-100P. The demand curve for your watches among adults under age 50 is
Q- 31,437-100P. Round to two decimal places for all calculations below.
a. Calculate the profit maximizing price and quantity for each group. What is the price elasticity of demand for
adults over 50? Under 50? Explain which is your low-valuation group, and whether these results make sense.
b. Contrast the profit earned in part (a) with the profit you would have earned if you had not been able to price
discriminate. Was the price discrimination plan worthwhile? Explain.
c. What is the optimal markup price for watches in both segments? Explain the calculation for optimal markup, and
what it means.

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