A women’s clothing retail chain has collected data on pricing and sales over the last five years at its flagship store in Charleston, S.C. These data were used to estimate a regression equation that relates price to demand. The following estimated equation relates demand to the price for summer dresses:
Y = 51,000 – 21.89p
Where Y 5the demand for summer dresses and p 5the price per dress. Summer dresses cost $210. The data also show that when a summer dress is sold, on average one pair of shoes and one purse are sold with the dress. The profit on a pair of shoes is $18 and the profit on a purse is $26.
a. What is the profit-maximizing price for dresses, ignoring the profit associated with the accompanying shoe and purse?
b. What is the profit-maximizing price for dresses taking into account the accompanying shoe and purse purchases?
c. Discuss the difference in prices obtained in parts (a) and (b).