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optimal markup on The optimal markup-on-cost formula can be illustrated through use of a simple example.

cost Consider the case of a leading catalog retailer of casual clothing and sporting equipment that

The pr°fit-maximizmg wishes to offer a basic two-strap design of Birkenstock leather sandals for easy on-and-off

-osdivi<ired1byetheaciijan casual wear. Assume the catalog retailer pays a wholesale price of $25 per pair for Birkenstock

üty 1 pius the price sandals and markets them at a regular catalog price of $75 per pair. This typical $50 profit mar-

elasticity of demand gin implies a standard markup on cost of 200 percent because

Markup on Cost =

Price - Cost Cost

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