Tutorial 1
1.
For most products, higher prices result in a decreased demand, whereas lower prices result
in an increased demand. Let
d
= annual demand for a product in units
p
= price per unit
Assume that firm accepts the following pricedemand relationship as being realistic:
d = 800 – 10p
where
p
must be between $ 20 and $70.
a.
How many units can the firm sell at the $ 20 perunit price? At the $ 70 perunit
price?
b.
Show the mathematical model for the total revenue (TR), which is the annual demand
multiplied by the unit price.
c.
Based on other considerations, the firm’s management will only consider price
alternative that will maximize the total revenue.
d.
What are the expected annual demand and the total revenue according to your
recommended price?
Information to solution:
d
=80010
p
TR = (800 10
p
)
p
2.
The O’Neill Shoe Manufacturing Company will produce a special –style shoe if the order
size is large enough to provide a reasonable profit. For each specialstyle order, the company
incurs a fixed cost of $1000 for the production setup. The variable cost is $ 30 per pair, and
each pair sells for $ 40.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview.
Sign up
to
access the rest of the document.
 Spring '11
 dd
 Annual demand, breakeven point, Luxury box

Click to edit the document details