Question

If the optimal markup on cost is 25%, the optimal markup on price is:

A)   20%

B)   25%

C)   50%

D)   100%

Answer 1

Optimal markup on cost = 1/4

     -1 / Ep+1      =       1/4

          -4            =       Ep+1

        -4 - 1         =      Ep

           Ep          =     -5

optimal markup on price =   -1/Ep

optimal markup on price = -1/-5   = 1/5 = 20%

optimal markup on price = 20%

Option A is correct.