You are the General Manager for a distributor of electrical engineering components and

spares. The marketing manager asks you for your advice regarding the profit maximising

prices for two products. She is concerned that the company is under-pricing at the current

price of R2 000 for Product A and R3 500 for product B. The unit cost purchased from the

manufacturers are R1 600 for product A and R3 000 for product B.

a. How would you explain to the marketing manager the nature of the profit

maximising (current) price for a product?

b. Explain the formula for the profit-maximising price.

c. If the marketing manager believes the price elasticity of demand for product

A is -5,0 what is the profit maximising price for the product?

d. Is product A underpriced, at the current price, or overpriced? Explain.

e. If the price elasticity of demand for product B is -6,0 what is the profit

maximising price for the product?

f. Is product B underpriced, at the current price, or overpriced? Explain.

g. Describe how you would explain to the marketing manager the assumptions

and weaknesses of the model.