# 1. Suppose you are the store manager at the Clayton Schnucks store. If Jif, Skippy and Peter Pan are selling their brands to your store at wholesale prices of $0.53, $0.57 and $0.55, respectively, what retail prices must you set for the 3 brands at your store? What would be your resulting retail profits in the peanut butter category? Which brand accounts for the greatest share of this retail profit? (Hint: Assume that your objective is to maximize your retail profit from the peanut butter category)

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1. Suppose you are the store manager at the Clayton Schnucks store. If Jif, Skippy and Peter Pan are

selling their brands to your store at wholesale prices of $0.53, $0.57 and $0.55, respectively, what

retail prices must you set for the 3 brands at your store? What would be your resulting retail

profits in the peanut butter category? Which brand accounts for the greatest share of this retail

profit? (Hint: Assume that your objective is to maximize your retail profit from the peanut butter

category)

. [4 POINTS]

2. Suppose, instead, that you are the brand manager for Peter Pan. Your marginal cost of production

for Peter Pan is $0.30. Taking the calculated retail prices in Q1 which the Clayton Schnucks store

sets for your brand and your 2 competing brands, calculate your resulting brand profit as a

manufacturer from the Clayton Schnucks store. Is this larger or smaller than the retail profit that

Clayton Schnucks obtains from your brand? [2 POINTS]

3. Suppose that you are still the brand manager for Peter Pan and that you want to change your

wholesale price of Peter Pan from $0.55 to some other value. Assume that the retailer uses the

same percentage mark

–

up over your wholesale price, as solved under Question 1, to set the retail price for your brand. Under this assumption, what wholesale price must you charge the retailer?

What is your resulting profit? By what % is this higher than the profit calculated in Q2? (Hint:

Assume that Jif and Skippy

’

s wholesale prices remain at their current values of $0.53 and $0.57,

and that the Clayton Schnucks store

’

s retail prices for those 2 brands remain at the calculated

values in Q1; assume further that your objective is to maximize your brand profit)

.

[4 POINTS]

4. Suppose that you are still the brand manager for Peter Pan. You suddenly realize that Jif and

Skippy will not stay put if you changed your wholesale price as calculated in Q3. They will change

their wholesale price in order to optimally respond to your new wholesale price. Given their

changed wholesale prices, you will further change your wholesale price as an optimal response to

their changed wholesale prices, and so on. Where will the 3 wholesale prices finally settle down?

In this calculation, assume that the retailer uses a percentage markup over the wholesale price,

as solved under Q1, to set the retail price for each brand. Also assume that the marginal cost of

production for Jif and Skippy are $0.31 and $0.34, respectively

. (Hint: Assume that the objective

of each brand manager is to maximize their brand profit)

. [5 POINTS]

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