It is a conventional practice among apparel retailers to set the retail price of clothing at twice the cost paid to the manufacturer. For example, if the retailer pays $7 for a pair of jeans, the jeans will retail for $14
What must the price elasticity of demand be for this practice to be profit maximizing?
Since price is twice marginal cost, the Lerner Index is 1/2. This practice is profit maximizing if the price elasticity of demand is -2.
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A traditional system operates based on the self interest of buyers and sellers
a. True b. False Indicate whether the statement is true or false
High monopoly profits are possible if each of the oligopolists in a market: a. cooperates by reducing its output
b. cooperates by reducing its price. c. pursues self-interest by increasing its output. d. pursues self-interest by decreasing its output.
Answer the following statement true (T) or false (F)
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