What is Maximum Willingness to Buy

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Reference no: EM133955993

Question

Phil Pfeifer owns a business refurbishing Army Surplus calculators. He has a contract to buy the calculators from government sources and could purchase up to 4,410 a month. His bid of $4.73 per calculator had won the contract to purchase the surplus calculators. He invested $42,400 in an automated engraving machine and started selling personalized calculators through a network of army surplus stores and VFW posts. Pricing was a problem, however. First, he had to consider that, on average, his resellers charged 42% margins and were content to sell at his recommended retail prices as long as they received their margins. Second, he thought it cost him $0.96 in labor and materials to engrave customized messages. For several months he sold an average of 1,260 calculators per month at a retail selling price of $35 per customized calculator. His wife suggested he could watch more lacrosse if he charged higher prices and sold fewer calculators. Phil raised the price to $44 and saw the number of calculators sold drop to 694.

1. Assuming the price-quantity demand function is linear, what is the slope?

2. What is the Maximum Willingness to Buy (MWB) if demand it linear?

3. What is the Maximum Reservation Price (MRP) if demand it linear?

4. Assuming a linear demand function, what is the Optimal Price for the calculators?

5. How many calculators per month would Ankush expect to sell at the optimal price?

Reference no: EM133955993

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