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Homework answers / question archive / The table below shows two demand schedules for a given style of men's shoe - that is, how many pairs per month will be demanded at various prices at a men's clothing store in Seattle called Stromnord

The table below shows two demand schedules for a given style of men's shoe - that is, how many pairs per month will be demanded at various prices at a men's clothing store in Seattle called Stromnord

Economics

The table below shows two demand schedules for a given style of men's shoe - that is, how many pairs per month will be demanded at various prices at a men's clothing store in Seattle called Stromnord.

Price D1 Quantity Demanded D2 Quantity Demanded
$85 53 13
80 60 15
75 66 18
70 77 22
65 87 27

 

Suppose that Stromnord has exactly 70 pairs of this style of shoe in inventory at the start of the month of July and will not receive any more pairs of this style until at least August 1.

a. If demand is D1, what is the lowest price that Stromnord can charge so that it will not run out of this model of shoe in the month of July? What if demand is D2?

b. If the price of shoes is set at $80 for both July and August and demand will be D2 in July and D1 in August, how many pairs of shoes should Stromnord order if it wants to end the month of August with exactly zero pairs of shoes in its inventory?

What if the price is set at $65 for both months?

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a. If demand goes according to the schedule D1, the lowest price that Stromnord can charge so that it will not run out of this model of shoe in July is $75. At that price, demand is 66 pairs of shoes, which is less than the inventory of 70 pairs. If price was lowered to $70, demand would increase to 77 pairs and exceed inventory by 7 pairs.

If demand is D2, the firm could set a price of at least as low as $65 per pair since, at that price, the demand of 27 pairs falls far short of the inventory of 70 pairs. Presumably, the firm could charge even lower prices although we are not provided enough information to determine that with certainty.

b. If the price of shoes is set at $80 for both July and August and demand will be D2 in July and D1 in August, Stromnord should order 5 pairs of shoes if it wants to end the month of August with exactly zero pairs of shoes in its inventory. With a price of $80 and demand in July equal to D2, the firm will sell 15 pairs of shoes. With 70 pairs currently in inventory, this will leave 55 pairs unsold at the end of July. With demand at D1 for August, 60 pairs of shoes will be demanded for the month at $80 per pair. So, Stromnord will need 5 additional pairs in order to be sold out at the end of the month.

If the price falls to $65 for both months, Stromnord will sell 27 pairs in July, leaving 43 in inventory. With demand at D1 for August, sales will be 87 pairs. Therefore, the firm will have to order an additional 44 pairs (i.e., 87 - 43).