Question
Suppose a small grocery store was selling 300 units per week of particular SKU priced at $4.50. Further, suppose that this items VCs were $3.60,
Suppose a small grocery store was selling 300 units per week of particular SKU priced at $4.50. Further, suppose that this items VCs were $3.60, there were incremental labor costs of $2 to implement a price change on this item, and this item warranted a contribution- margin adjustment for complements of $0.75. (a) Given this information, use the GBE algorithm (illustrated in Figure 17.7) to calculate the EBE for a 5% price decrease. (b) If the price elasticity module of the algorithm indicated that the markets price elasticity was 2.0, would the price-increase module be activated or the price-decrease module? Explain your reasoning. (c) Assuming your answer to Part (b), describe the steps that would be taken by the GBE algorithm to arrive at a profit-maximizing price in this situation.
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