Optimal Markup
Dr. Robert Romano, chief of staff at County General Hospital, has asked you to propose an appropriate markup pricing policy for various medical procedures per- formed in the hospital's emergency room. To help in this regard, you consult a trade industry publication that provides data about the price elasticity of demand for medical procedures. Unfortunately, the abrasive Dr. Romano failed to mention whether he wanted you to calculate the optimal markup as a percentage of price or as a percentage of cost. To be safe, calculate the optimal markup on price and optimal markup on cost for each of the following procedures:
|
Procedure
|
Price Elasticity
|
Optimal Markup on Cost
|
Optimal Markup on Price
|
|
A
|
-1
|
|
|
|
B
|
-2
|
|
|
|
C
|
-3
|
|
|
|
D
|
-4
|
|
|
|
E
|
-5
|
|
|