Paulo's Flowers is a small neighbourhood florist shop. Paulo sells flowers for bouquets, and he also prepares and delivers flower arrangements.
REQUIRED
A. Paulo is trying to decide how much to charge for a new type of rose that wholesales for $0.40 per bud. He ran a special on a similar rose last month and discovered that a 20% discount on the usual price increased sales by about 35%. What would you suggest as a starting price for the rose? Explain.
B. Paulo has been wondering whether he has been charging the right prices on some of his specialty bouquets. He has been using a mark-up for all specialty items of 200% (i.e., he charges three times wholesale cost). Paulo estimates that a 10% increase in price on such items would decrease his unit sales by about 12%. Perform calculations to estimate a profit-maximizing mark-up. Based on your calculation, do you think he should increase or decrease his mark-up? Explain.