Gugusan Sdn Bhd owns a sundry shop in one of the many highland resorts in Malaysia.

Owing to lack of competition (being the only sundry shop in its present location), Gugusan sells all kinds of products that holiday guests and tourists require at a mark-up of 20%whereas other similar shops in the bigger towns sell at mark ups ranging from 4% to 5% on cost of goods sold. Gugusan also sells beverages at 100% mark up:

a) Discuss whether Gugusan Sdn Bhd is maximizing profits or wealth. (3Marks)

b) Point out how can Gugusan Sdn Bhd stay in business despite charging relatively higher price than other similar shops in the bigger towns. (6 Marks)

c) If other similar shops have an average margin of 10% and sell for six times the net profits, the owners of Gugusan Sdn Bhd believe that their business is worth at least ten times the net profits. Do you agree? Discuss. (6 Marks)