Consider a retailer selling blenders currently priced at $54. Suppose it pays $29 per blender from the manufacturer.
(a) Suppose the retailer's market research team determines that the elasticity of demand for consumers of blenders is - 1.5. What does this imply about the actual demand for blenders in case of the two situations: a 33% price cut or a price increase to $59?
(b) Can you make recommendations to the retailer regarding which strategy makes more sense: a 33% price cut or a price rise to $59 from its current price level of $54?