PROBLEM SOLVING/ESSAY:

1. Suppose the elasticity of demand for the parking lot spaces at SM Downtown is -2 and price is 160 per day. If the MC is zero and the parking lot is 75% full at 10 a.m. over the last month, are they optimizing? Justify your answer.Show solution.

2. Mall Store retailers place their most expensive products right in the entryway of the store, where consumers will see them first, and place their more popular, better-selling items further back. Why?

For reference in number 2:

These are two main reasons for a high and retailer to place the most expensive products in the entryway of the store:

Branding: Placing those products in the entryway will capture customers' attention immediately. The most expensive products will appear in customers' discussions in their daily lives, which reminds them about the brand. As long as their brand is mentioned and recognized, it is a successful branding strategy. For high-end brands, the most expensive products are usually a signature version or limited edition, which encourages their customers to identify the brand immediately.

Generating a price benchmarking between products in a store: If customers see the most expensive products at first, other products the further back will become less expensive. Alternatively, prices of products in the further back seem to be comfortable to customers, which might cause them to purchase those popular products.

Moreover, consumers are motivated by a comparison of the price level of a good to a reference price. A reference price a price with which other prices are compared. Their more popular and better-selling items are put further back because the demand for these goods are already built and their most expensive products right in the entryway of the store, where consumers will see them first Consumers are motivated by comparing the price level with a