The company is considering lowering the
a. Evaluate the impact of the price cut on the (i) total revenue and (ii) contribution margin of Model A. Based on this analysis, should the firm lower the price of Model A? Explain
b. Evaluate the impact of the price cut on the (i) total revenue and (ii) contribution margin for the entire line of tennis rackets.
c. Based on this analysis, should the firm lower the price of Model A? Explain
Trending nowThis is a popular solution!
Step by stepSolved in 4 steps
- Given the demand function D(p) = sqrt(225 - 3p) Find the Elasticity of Demand at a price of $5 At this price, we would say the demand is: Elastic Unitary Inelastic Based on this, to increase revenue we should: Lower Prices Keep Prices Unchanged Raise Pricesarrow_forwardThe price elasticity of demand for air travel differs radically from first-class (-1.3) t to restricted discount coach (-1.8). Given these elasticities, what will be the difference between the optimal prices (fares) of first class and discount coach on a cross-country trip with incremental variable costs (marginal costs) equal to $120?arrow_forwardThe demand function for product is p = -4q+400 and the average cost for producing q units 500 is c = 37q + 40 + where p= price, and q= quantity demand. 2 9 1. 2. 3. 4. Compute the point elasticity of demand and find the intervals where the demand is inelastic, elastic, and the price for which the demand is unit elastic. Find the quantity that maximizes the total revenue and the corresponding price. Interpret your result. Find the quantity that minimizes the average cost function and the corresponding price. Interpret your results. What are the quantity and the price that maximize the profit? What is the maximum profit? Interpret your result.arrow_forward
- The cross-price elasticity between two products is estimated to be -0.5. If the price of the first product is increased by 8%, demand for the second product will a) increase by 16% b) decrease by 4% c) increase by 4% d) increase by 8%arrow_forwardThe Potomac Range Corporation manufactures a line of microwave ovens costing $500 each. Its sales have averaged about 6,000 units per month during the past year. In August, Potomac's closest competitor, Spring City Stove Works, cut its price for a closely competitive model from $600 to $545. Potomac noticed that its sales volume declined to 4,500 units per month after Spring City announced its price cut. a) What is the arc cross elasticity of demand between Potomac's oven and the competitive Spring City model? b) If Potomac knows that the arc price elasticity of demand for its ovens is −2.0, what price would Potomac have to charge to sell the same number of units it did before the Spring City price cut?arrow_forwardIndustry demand and supply for a new soft drink NeuCola is as follows:Qd = 460,000 – 100,000 P + 22,500 Pc + 21 Y + 2,000 TQs = 40,000 + 80,000 P – 60,000 PL – 5,000 Pk Where P is the average price of the drink in $ per pack, Pc is the average wholesale price of other branded drinks in the market, Y is income in $, T is the average daily temperature in degrees, PL is the average wage of labor in $ per hour and Pk is the average cost of capital in $. a.When quantity is expressed as a function of price, what are NeuCola’s demand and supply curves if Pc = $8, Y=$10,000 billion, T=75 degrees, PL=$10, and Pk=$12. b., Will, there be a surplus or shortage of NeuCola when P = $5, $7, and $9? Use a table to show values of quantity demanded and quantity supplied at each level of price. (Values of Qd and Qs calculated in millions may be rounded in the table).c.Calculate the market equilibrium price and equilibrium output.d.Draw a labeled hypothetical demand and supply model clearly indicating…arrow_forward
- Nonearrow_forwardThe optimal mark-up is: m = -1/ (E+1). When the mark-up on cookware equals 50%, then demand elasticity (E) for cookware is:arrow_forwardA firm is faced with the following demand function (estimated in a regression equation based onpast data).QX = 200 – 4PX , where current price (PX ) = $30The firm is thinking of reducing price to $25 because someone suggested that wouldbring in more revenue. a. What is the own-price elasticity of demand? (show absolute value)b. Is the demand function elastic, inelastic or unitary elastic at a price of $30?c. Will the price reduction bring in more revenue?arrow_forward
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education