Kroger, the country’s leading grocery-only chain, added a line of private-label organic and natural foods call Simple Truth to its stores. If you’ve priced organic foods, you know they are more expensive. For example, a dozen conventionally farmed grade-A eggs at Kroger costs consumers $1.70, whereas Simple Truth eggs are priced at $3.50 per dozen. One study found that, overall, the average price of organic foods is 85 percent more than conventional foods. However, if prices get too high, consumers will not purchase the organic options. One element of sustainability is organic farming, which costs much more than conventional farming, and those higher costs are passed on to consumers. Suppose that a conventional egg farmer’s average fixed costs per year for conventionally farmed eggs are $1 million per year, but an organic egg farmer’s fixed costs are three times that amount. The organic farmer’s variable costs of $1.80 per dozen are twice as much as conventional farmer’s variable costs. Refer to Appendix 2, Marketing by the Numbers, to answer the following questions. Most large egg farmers sell eggs directly to retailers. Using Kroger’s prices, what is the farmer’s price per dozen to the retailer for conventional and organic eggs if Kroger’s margin is 20 percent based on its retail price? How many dozen eggs does a conventional farmer need to sell to break even? How many does an organic farmer need to sell to break even?
Kroger, the country’s leading grocery-only chain, added a line of private-label organic and natural foods call Simple Truth to its stores. If you’ve priced organic foods, you know they are more expensive. For example, a dozen conventionally farmed grade-A eggs at Kroger costs consumers $1.70, whereas Simple Truth eggs are priced at $3.50 per dozen. One study found that, overall, the average price of organic foods is 85 percent more than conventional foods. However, if prices get too high, consumers will not purchase the organic options. One element of sustainability is organic farming, which costs much more than conventional
farming, and those higher costs are passed on to consumers.
Suppose that a conventional egg farmer’s average fixed costs per
year for conventionally farmed eggs are $1 million per year, but an
organic egg farmer’s fixed costs are three times that amount. The
organic farmer’s variable costs of $1.80 per dozen are twice as
much as conventional farmer’s variable costs. Refer to Appendix
2, Marketing by the Numbers, to answer the following questions.
Most large egg farmers sell eggs directly to retailers.
Using Kroger’s prices, what is the farmer’s price per
dozen to the retailer for conventional and organic eggs
if Kroger’s margin is 20 percent based on its retail
price?
How many dozen eggs does a conventional farmer need to sell to break even? How many does an organic farmer need to sell to break even?
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