Author Question: Coffee Mug Pricing Manny's Merchandising can custom print logos onto coffee mugs. It sells it most ... (Read 134 times)

Alygatorr01285 · **on:** Jul 1, 2018

Coffee Mug Pricing Manny's Merchandising can custom print logos onto coffee mugs. It sells it most popular style for 10 and has a marginal cost, including a blank mug and the printing, of 6 . Manny recently ran a diff-in-diff experiment and determined your demand elasticity is -5 . Should Manny raise or lower price?

Question 2

Would the customer be able to convince the shopkeeper that he would walk out if he receives a high price?
a. Yes, because walking out is most profitable move for the customer
b. No, because walking out is an unprofitable strategy for the customer
c. No, because walking out is not a credible threat
d. Both B&C

frre432 · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

Manny's current markup is (P-MC)/P = (10-6)/10 = 0.4 . Manny's desired markup is 1/e = 0.2 . Your current markup is too high so he should lower the price to 7.50.

Answer to Question 2

d