Online Retailing

According to Wikipedia, "Nutmeg is the spice made by grinding the seed of the fragrant

nutmeg tree into powder. The spice has a distinctive pungent fragrance and a warm slightly

sweet taste; it is used to flavor many kinds of baked goods, confections, puddings, potatoes,

meats, sausages, sauces, vegetables, and such beverages as eggnog." Sixteen ounce jars of

nutmeg are available from many online retailers.

You run the pricing department for

bakestuff.com

, and you have been collecting data as

part of a price experiment. On some days, customers visiting your site to buy nutmeg are

shown a price of $13.59 for a sixteen ounce jar. On other days, customers are shown a price of

$11.99. On still other days, customers are shown a price of $10.99. Download data from this

pricing experiment from the Canvas page.

(b)Compute an estimate of the elasticity at a price of $10.99 by doing the following: Compute the percentage change in average daily quantity when the firm raises its price to $11.99from $10.99.Then divide this by the percentage change in price when the firm raises its price to $11.99.

(c)Compute an estimate of the elasticity at a price of $13.59 by doing the following: Compute the percentage change in average daily quantity when the firm cuts its price to $11.99from $13.59.Then divide this by the percentage change in price when the firm cuts its price to $11.99.

(d)Compute an estimate of the elasticity at a price of $11.99 by doing the following:Compute percentage change in average daily quantity when the firm cuts its price to $10.99 from $11.99.Then divide this by the percentage change in price when the firm cuts its price to $10.99.Now compute the percentage change in average daily quantity when the firm raises its price to $13.59 from $11.99.Then divide this by the percentage change in price when the firm raises its price to $13.59.Average the two numbers above and use this as your estimate of the elasticity at a price of $11.99.(e)Bakestuff's marginal cost of a jar of nutmeg is $5.60.Use the inverse elasticity pricing rule to recommend a profit-maximizing price for nutmeg based on your analysis above.