Coffee Mug Pricing Manny's Merchandising can custom print logos onto coffee mugs. It sells it most popular style for $10 and has a marginal cost, including a blank mug and the printing, of $6 . Manny recently ran a diff-in-diff experiment and determined your demand elasticity is -5 . Should Manny raise or lower price?
Manny's current markup is (P-MC)/P = (10-6)/10 = 0.4 . Manny's desired markup is 1/|e| = 0.2 . Your current markup is too high so he should lower the price to $7.50.
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