The optimal mark-up is: m = -1/ (E+1).When the mark-up on cookware equals 50%,then demand elasticity (E)for cookware is:
A) -1
B) -1.5
C) -2
D) -3

Question

Quizplus · Accepted Answer

Using the formula for optimal mark-up:

m = -1/(E+1)

If the mark-up on cookware is 50%, then m = 0.5.

0.5 = -1/(E+1)

Multiplying both sides by (E+1) gives:

0.5(E+1) = -1

0.5E + 0.5 = -1

0.5E = -1.5

E = -3

So the demand elasticity for cookware is -3.

Therefore, the best choice is C) -2 as it is not listed.

The Optimal Mark-Up Is: M = -1/ (E+1)