Canton residents consume one million bottles of Cangaro red wine every year. Buzz the store estimates that it has a 4.5 % market share of Cangaro wine sales in Canton. They pay
$5,000 per month in rental charges for the store. Buzz sells the Cangaro wine for $10 per
bottle. They buy Cangaro at $5.50 per bottle and spend another $0.50 per bottle for transportation to their shop.
a. Calculate the BEV in units and $
b. Calculate the % markup (profit margin %. on sales price and total cost)
c. Calculate the total profit.
Due to inflation, the transportation costs doubled from 50 cents per bottle to $1.0 per
bottle. They want to raise the price but not sure how much to raise because they worried that increased price may results in losing too many customers. They are considering two options.

 

Option 1: Increase the price by 50 cents to cover the cost. Price elasticity of demand is 1.5
a. What is the new market share at the new price?
b. Calculate the % markup (profit margin %). on sales price and total cost at this new price.
c. Calculate the total profit

 

Option 2: Raise the price by $1 per bottle. Price elasticity of demand is 1.5.
d. What is the new market share at the increased price?
e. Calculate the % markup (profit margin %. on sales price and total cost at this new price.
f. Calculate the total profit
Choose the option from the two options above that makes it possible for Buzz to meet their
objective of maintaining their profitability. Option1, Option 2 or do nothing.