Table 12.2 shows the optimal markup on marginal cost and on price for products with varying price elasticities of demand. As the table indicates, the more elastic the demand for a product, the more price sensitive it is and the smaller the optimal margin. Products with relatively less elastic demand have higher optimal markups. In the retail grocery example, a very low markup is consistent with a high price elasticity of demand for milk. Demand for fruits and vegetables during their peak seasons is considerably less price sensitive, and correspondingly higher markups reflect this lower price elasticity of demand.
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