The Econ Breads has hired you as their economist. Your first task is to estimate the price
Question:
The Econ Breads has hired you as their economist. Your first task is to estimate the price elasticity of demand for different bread types. You find that the Plain White bread has an elasticity of -8 while the World's Best Healthy has an elasticity of -2.5. Historically, the elasticities have been stable. Show all work and calculations. (5 points)
a) Qualitatively, explain the significance of your findings. Include in your analysis what you should generally do to the price(s) based on the data (1 point).
b) What might explain the difference in elasticities between the two bread types? (1 points)
c) Which bread should have the higher markup? (1 point)
d)You have data that shows the marginal cost of the Plain White is 1.5 dollar. Are you able to find the optimal price of the Plain White bread given the marginal costs? If so, what is the optimal price? Show all your work. (1 point)
e)You have data that shows the marginal cost of the World's Best Healthy is 2.5 dollars. Are you able to find the optimal price of the World's Best Healthy bread given the marginal costs? If so, what is the optimal price? Show all your work. (1 point)