Books-to-Go, Inc., has a recurring problem of clearing its shelves of hardcover books once the publisher releases the paperback edition. These books take up shelf space, and the sales are slow.
More important, however, they tie up capital with which to buy new bestsellers. Typically, hardcover bestsellers initially retail for $39.95 and have sales of approximately 30 per month during the introductory period. Once the paperback becomes available, hardcover sales plummet to approximately 3 per month. The mark-up on bestsellers is 50 percent of cost.
a. If the paperback version sells for $12.95 and 15 hardbacks are in stock, recommend a discount price for the hardcover version.
b. Explain why the discount price is not influenced by the number of hardcovers in stock.