Atrium, a manufacturer of upscale designer tee-shirts, is considering launching an Internet operation to sell its product direct to consumers in addition to distributing through traditional bricks-and-mortar retail stores. Management believes an Internet presence should augment its retail operation. Atrium tee-shirts, made of 100% refined woven cotton, feature batik prints. The cost of producing an Atrium designer tee-shirt is $6.50 per shirt. Internet: In selling tee-shirts on the Web, the company must hire a Web page architect to design the page and maintain it over the course of a year. The salary for a Web page architect is $60,000, including expenses and benefits. Shipping on Internet orders, which is to be included in the retail price of the tee-shirts, is estimated to be $4.20 per shirt. Retail store distribution: A retail chain has proposed to carry Atrium tee-shirts for a year in exchange for a 35% dealer margin. Additional in-store promotion and a local print advertising campaign for a year will cost Atrium $80,000.
Based on the above information, answer the following questions. Please Show Your Calculations.
2a) If the retailer purchases the tee-shirts from Atrium for $24 a piece and sells them for $32 a piece in the retail stores, what is the retailer’s markup in percentage term? What is the retailer’s margin in percentage term?
2b) If the retailer can sell 5,000 tee-shirts at $40 a piece, how much profit can Atrium make? Assume the retailer’s margin is 35%.
2c) The retailer can sell 5,000 tee-shirts at $40 a piece. If the retailer lowers the price to $35 a piece, he can sell an additional 1,500 tee-shirts. What is the demand elasticity?