8.4 Price-Volume Pricing (Figures 8-23 to 8-25) The price elasticity for personal computers is estimated to be –2. For the PC manufacturer shown, evaluate the sales and profit impact of a 10% price increase and a 10% price decrease. For each pricing strategy, determine the break-even market share and discuss the profit risk associated with it.
8.4 Price-Volume Pricing (Figures 8-23 to 8-25) The price elasticity for personal computers is estimated to be –2. For the PC manufacturer shown, evaluate the sales and profit impact of a 10% price increase and a 10% price decrease. For each pricing strategy, determine the break-even market share and discuss the profit risk associated with it.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
8.4
- The price elasticity for personal computers is estimated to be –2. For the PC manufacturer shown, evaluate the sales and profit impact of a 10% price increase and a 10% price decrease.
For each pricing strategy, determine the break-even market share and discuss the profit risk associated with it.
Transcribed Image Text:FIGURE 8-24 PRICE-VOLUME STRATEGY AND PROFIT IMPACT
Performance Factor
Metric
Current
Strategy
Impact
Market Demand
units
50,000
10% Price
50,000
Decrease
Market Share
%
20.0%
25.0%
Volume Sold
units
10,000
12,500
Average Selling Price
$/unit
$1,000
$900
Net Sales
$
$10,000,000
$11,250,000
Unit Cost
$/unit
$700
$700
Percent Margin
%
30.0%
22.2%
Gross Profit
$3,000,000
$2,500,000
FIGURE 8-25 PRICE-VOLUME PROFITABILITY
Performance Factor
Metric
Current
Strategy
Impact
Market Demand
units
50,000
10% Price
50,000
Decrease
Market Share
%
20.0%
30.0%
Volume Sold
units
10,000
15,000
Average Selling Price
$/unit
$1,000
$900
Net Sales
$
$10,000,000
$13,500,000
Unit Cost
$/unit
$700
$700
Percent Margin
%
30.0%
22.2%
Gross Profit
$
$3,000,000
$3,000,000
|
Transcribed Image Text:FIGURE 8-23 PRICE-VOLUME SALES STRATEGY
Performance Factor
Metric
Current
Strategy
Impact
Market Demand
units
50,000
10% Price
50,000
Decrease
Market Share
%
20.0%
25.0%
Volume Sold
units
10,000
12,500
Average Selling Price
$/unit
$1,000
$900
Net Sales
$10,000,000
$11,250,000
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Similar questions
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education