Question

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
$75	53	13
70	60	15
65	68	18
60	77	22
55	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.

Instructions: Enter your answers as whole numbers.

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 $75 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 $55 for both months?

Answer 1

(a) 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.

If demand is D1, the lowest price stromnord will charge is $65, because at price of $60 the demand is 77 and Stromnord has 70 pairs of shoes in inventory.

If demand is D2, the lowest price stromnord will charge is $55.

(b) If the price of shoes is set at $75 for both July and August and demand will be D2 in July and D1 in August.

Then total demand for these months will be 66 pairs of shoes. Since, stormnord has 70 pairs of shoes in inventory. There is no need to order any pairs of shoes.

If the price is $55 then the total demand for these two months will be 114 pairs of shoes and stormnord has 70 pairs of shoes in inventory. There is a need to order 44 more pairs of shoes.