3. Consider a retailer selling blenders currently priced at $54.Suppose it pays $29 per blender from the manufacturer.
A. Initial contribution margin is $54-$29= $25
B. Suppose it is considering a 33% cut in price to boost sales.What is the break-even change in sales required to maintain itsprofitability?
C. Alternatively, suppose an expert tells the retailer that itshould consider raising its price of the blenders to $59 to improveprofit. What is the break-even change in sales permissible to againmaintain its profitability?
D. Using the break-even change in sales you obtained in (b) and(c), plot the break-even curve for the retailer.
E. Suppose the retailerâs market research team determines thatthe elasticity of demand for consumers of blenders is â 1.5. Whatdoes this imply about the actual demand for blenders in case of thetwo situations: a 33% price cut or a price increase to $59? Plotthe demand curve alongside the break-even curve to show thedifference between the two curves.
F. Can you make recommendations to the retailer regarding whichstrategy makes more sense: a 33% price cut or a price rise to $59from its current price level of $54?
3. Consider a retailer selling blenders currently priced at $54.Suppose it pays $29 per blender from the manufacturer.
A. Initial contribution margin is $54-$29= $25
B. Suppose it is considering a 33% cut in price to boost sales.What is the break-even change in sales required to maintain itsprofitability?
C. Alternatively, suppose an expert tells the retailer that itshould consider raising its price of the blenders to $59 to improveprofit. What is the break-even change in sales permissible to againmaintain its profitability?
D. Using the break-even change in sales you obtained in (b) and(c), plot the break-even curve for the retailer.
E. Suppose the retailerâs market research team determines thatthe elasticity of demand for consumers of blenders is â 1.5. Whatdoes this imply about the actual demand for blenders in case of thetwo situations: a 33% price cut or a price increase to $59? Plotthe demand curve alongside the break-even curve to show thedifference between the two curves.
F. Can you make recommendations to the retailer regarding whichstrategy makes more sense: a 33% price cut or a price rise to $59from its current price level of $54?
