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  3. problem 339 taylor pennington produces and sells hammocks one day...

Question: problem 339 taylor pennington produces and sells hammocks one day...

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Problem 3-39

Taylor Pennington produces and sells hammocks. One day during lunch he complained to his friend Steven Green, an economist, that he was having trouble setting prices. When he raised his prices, demand went down as expected, but he could never predict how much demand would change. “I understand my costs quite well,” Taylor commented. “I can produce hammocks for $67 each, and I incur $392,600 in fixed costs each year. I think I could manage my business much better if I had a better idea of the demand for hammocks at different prices.” Steve said he would take a look at several years’ worth of sales data and try to estimate a demand curve for the hammocks. He came up with the following table:

Sales Price

Demand

$207 41,201
$197 45,030
$187 49,219
$177 53,803
$167 58,819
$157 64,307
$147 70,312
$137 76,882
$127 84,071
$117 91,937
$107 100,544

What price can be expected to result in the highest operating income? Price: $177

B) What is the markup on variable cost at the price you selected in part (a)? (Round markup percentage to 2 decimal places, e.g. 0.38.)

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