Imagine we have a manufacturer and retailer. The manufacturer sells the item to a retailer for $50 a unit (it costs the manufacturer $20 per unit), and the retailer then sells the product for $100 per unit. Under this scenario, 2,500 units of sales are expected. If the retailer increases prices to $125 per unit, sales are expected to decline to 1,800 units. Should the manufacturer institute maximum resale price maintenance for this unit?
Question 6 options:
a)
There is not enough information to answer this question because the answer depends on the price elasticity of demand at the retail level.
b)
There is not enough information to answer this question because the answer depends on the price elasticity of demand at the manufacturing level.
c)
No, the manufacturer should not implement maximum resale price maintenance at $100 because the retailer makes less profit at the $125 price point than at the $100 price point.
d)
Yes, the manufacturer should implement maximum resale price maintenance at $100 because the retailer makes greater profit at the $125 price point than at the $100 price point.