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4. Your friend, the manager of the Jewel on Dempster in Evanston, has a problem. She has too much cereal in the stockroom and needs
4. Your friend, the manager of the Jewel on Dempster in Evanston, has a problem. She has too much cereal in the stockroom and needs to clear some space to make room for other merchandise. Over an adult beverage, she tells you that from experience she knows that in a typical week she sells 600 boxes of Cheerios at a price of $3 each, and 400 boxes of Lucky Charms at a price of $4 each. What's more, she estimates that the elasticity of demand for Lucky Charms at the Evanston Jewel is -5.2, while the elasticity of demand for Cheerios at her store is -4.5. a. Which cereal should she put on sale if she wants to clear out her inventory with the smallest possible drop in price? b. If she wants to sell a total of 1200 boxes of the two cereals this week, by how much should she discount the cereal you recommended in part a above
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