group All members contributed satisfactorily.
1.
a. 10% increase in the price would drop the qu. demanded by 3%
b. TR=50*10,000= $500,000 TC= 10,000*15= $150,000
c. P2=$55 Q2= 10,000*.97= 9,700 units CM2=55-35=$20 unit TR= 55* 9,700= $
533,500 TR
20*9,700=$194,000 total contribution margin
I would definitely recommend the price increase since the company is in the inelastic portion
of the
demand curve. The companys price effect is greater than its quantity effect as it moves the
price up in this portion of the demand curve resulting in a $44,000 increase in contribution
margin.
d. (5) / 15+ 5= -5/ 20= -.25
e. For the 10% price increase, quantity demanded cannot decrease by more than 25%.
Alternatively, given the $5 price increase, maximum amount quantity demanded can decrease by
and this company make the same amount of contribution margin would be 25%.
f. both metrics support the price increase because I do not think that increasing the price by $5
will drop the quantity demanded by more than a quarter of the original , and the first metric says
it will them make more margin.
2.
a.
Quantity demanded= 3000 200 (price)
MRP: 0= 3,000 200p
-3,000=-200p
p =15
this metric means that starting at $15 no one will buy this product
b. MWB: 3,000 200 (0) = 3,000
this is the maximum demand for my product at any price, even if I gave it away, I could
never get
rid of more than 3000 units of my product
c.
optimal price: 15+2.5/ 2 = $8.75
d.
8.75 2.50= 6.25 cm ; Q= 3,000 - 200 (8.75) = 1250 quantity demanded at the o.p.
1250* 8.75= $10,937.5 TR ; 1250 * 6.25= $7,812.5 TCM
e.
$8.76-2.50=6.26cm
8.74-2.5= 6.24cm
3000- 200 (8.76)=1,248 units
3000- (200*8.74)= 1,252 units
1248*6.26=$7,812.48 tcm
1252* (6.24)= $7,812.48 tcm
Decreases with both a cent increase and a cent decrease.
3. a. p1 25 - vc1 15= 10 cm
qd1=50,000 pillows vc2= 20 p2= 25*1.15= 28.75;
cm2= 28.75-20
= 8.75
- (10-8.75)/ 8.75= 1.25/8.75= 14.29%
b. in order for this price change to be profitable, the quantity sold must increase by more than
14.29%
c. tcm for current price= 10*50,000= $500,000;
tcm for new price: 8.75 * (50,000 * 1.142857)=$500,000