Profit Maximization Simulation

Profit Maximization Simulation - of price and quality to...

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9/9/2009 Bus 189 Profit Maximization Simulation At first I did not know what the simulation was generating, but after few trials, I was able to understand what the change in price and the quality is generating. For the first trial, the change was small. I raised the price $10 to $110, than another $10 to $120, than I changed the price to $200 to see what was going on with the simulation. After that, I noticed that at the bottom of the profit and lost table there was a row call “Unmet demand”. So to meet the needs of the demand I kept the price the same at $200 and change the quality to 700. That changed the profit and the retained earnings to positive. I kept making small changes and end up with a best price to quality of $300 and 400. This generated sales of $120,000 and COGS of $60,000, making the gross margin to be $60,000. This was not the highest sales generated but the highest Gross Margin generated. So I decided that this was the perfect number
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Unformatted text preview: of price and quality to generate maximum profit. Just to be sure, I did another trial with price $300 and quality 400 with small changes within that range. With the small changes, I’ve noticed that there is a better number of price and quality. With the price of $325 and quality of 350 the simulation generated gross margin of $61,250, $1,250 higher than price of $300 with quality of 400. So again I did small changes to the price and quality. But the small changes only made the Gross margin lower, by having lower sales or high COGS. So I stick with price of $325 and quality of 350. This generated more and more revenues over time. Finally, to generate the maximum profit, I did the 3 rd and final trial with price of $325 and quality of 350. I kept the price and quality same throughout the 10 years term and generated retained earnings of $390,875 at the end of year 2015....
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Profit Maximization Simulation - of price and quality to...

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