Why there is a difference between the above two strategies

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Reference no: EM131088118

Lizzie's Lingerie started selling robes for $36, adding a 50 per cent mark-up on cost. Costs were estimated at $24 each: the $10 purchase price of each robe, plus $6 in allocated variable overhead costs, plus an allocated fixed overhead charge of $8. Customer response was such that when Lizzie's raised prices from $36 to $39 per robe, sales fell from 54 to 46 robes perweek.

a. Estimate the optimal (profit-maximizing) pricing strategy assuming a linear demand curve.

b. Estimate the optimal pricing strategy assuming a power demand curve.

c. Explain why there is a difference between the above two strategies.

d. Estimate the size of the profit at both prices, assuming a power demand curve.

e. Estimate the optimal price if the cost of buying the robes rises from $10 to $11, assuming a power demand curve.

Reference no: EM131088118

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