You are serving as the chair for your community’s annual wellness campaign. A key event is the annual Walk 3k, Run 10k, Ride 20k event.
You are serving as the chair for your community’s annual wellness campaign. A key event is the annual Walk 3k, Run 10k, Ride 20k event. The event is staged entirely by volunteers and the goal is to attract community-wide awareness of getting active as a key step to wellness. In other words, the goal is not to raise money, but to prompt awareness. As the chair, you set a financial goal to break even on the one and only cost of the event, a fitness bag with the community seal and the event motto, “I AM ON THE RIGHT TRACK!”
The cost of the bags, which must be ordered in batches of 100, are:
Bags Fixed Cost Variable Cost Total Cost Marginal Cost
0 $1,700 $ – $1,700
100 $1,700 $500 $2,200
200 $1,700 $1,200 $2,900
300 $1,700 $2,700 $4,400
400 $1,700 $5,200 $6,900
500 $1,700 $9,000 $10,700
600 $1,700 $15,000 $16,700
700 $1,700 $23,800 $25,500
800 $1,700 $36,800 $38,500
900 $1,700 $55,800 $57,500
1,000 $1,700 $83,000 $84,700
Question 2
Bags Fixed Cost Variable Cost Total Cost
0 $1,700 $ – $1,700
100 $1,700 $500 $2,200
200 $1,700 $1,200 $2,900
300 $1,700 $2,700 $4,400
400 $1,700 $5,200 $6,900
500 $1,700 $9,000 $10,700
600 $1,700 $15,000 $16,700
700 $1,700 $23,800 $25,500
800 $1,700 $36,800 $38,500
900 $1,700 $55,800 $57,500
1,000 $1,700 $83,000 $84,700
Given the above information on cost, if you charge $15 per entry, what is the breakeven quantity of bags that you should order? Orders must be placed in blocks of 100 bags.
Please select any/all viable approaches below:
Use the profit maximizing rule, MR ≥ MC, buy 300 bags.
Use the profit maximizing rule, MR ≥ MC, buy 200 bags.
Use Qb = F/(MR-AVC) where Qb is the breakeven quantity to be determined, the optimal quantity of bags is 300.
Use Qb = F/(MR-AVC) where Qb is the breakeven quantity to be determined, the optimal quantity of bags is 200.
Question 3
Your marketing department just undertook a major advertising campaign promoting the quality of your Best Brand Bike Shorts—BBB Shorts.
They have provided you with an estimate of the success of the campaign stating: “the price elasticity of demand has decreased from-5.76 to -3.76.”
Before the campaign, your price was $240 per pair of BBB Shorts. What should the new price be?
Please enter the new price here: $
[a]
Question 4
Seven years ago, you started a crosstown delivery service. The service is an environmentally friendly business and, given all the traffic congestion, you are also the fastest service in the city since your entire crew are bicyclists. You have two types of service. You have a small parcel service for anything that is flat and measures less than 11×17. You have a package service using a 100 lb. capacity bike trailer for anything weighing up to 10 lbs. As a way to introduce the new package service when you implemented the small package service, you charged the same price for packages as parcels. You are now wondering if you should charge different prices for the parcel and package service.
Complete the table below for the combined market of parcels and packages.
Price Parcels and Packages TR MR TC MC MR-MC Profit
50 5,000 1,600 3,400
90
10,800 83 2,300 10 73 8,500
80 190 15,200 63 3,000 10 53
260 18,200 43 3,700 10 33 14,500
60
19,800 23 4,400 10 13 15,400
50 400 20,000 3 5,100 10 -7
470 18,800 -17 5,800 10 -27 13,000
30
16,200 -37 6,500 10 -47 9,700
20 610 12,200 -57 7,200 10 -67
10 680 6,800 -77 7,900 10 -87 -1,100
Question 5
Seven years ago, you started a crosstown delivery service. The service is an environmentally friendly business and, given all the traffic congestion, you are also the fastest service in the city since your entire crew are bicyclists. You have two types of service. You have a small parcel service for anything that is flat and measures less than 11×17. You have a package service using a 100 lb. capacity bike trailer for anything weighing up to 10 lbs. As a way to introduce the new package service when you implemented the small package service, you charged the same price for packages as parcels. You are now wondering if you should charge different prices for the parcel and package service.
Complete the table below for the parcels market.
Price Parcels TR MR TC MC MR-MC Profit
100 0 0 1,150
90
4,500 90 1,650 10 80 2,850
100 8,000 70 2,150 10 60 5,850
70 150 10,500 50 2,650 10 40 7,850
60 200 12,000 30 3,150 10 20
50
12,500 10 3,650 10 0 8850
300 12,000 -10 4,150 10 -20 7850
30 350 10,500 -30 4,650 10 -40
20
8,000 -50 5,150 10 -60 2850
450 4,500 -70 5,650 10 -80 -1,150
Question 6
Seven years ago, you started a crosstown delivery service. The service is an environmentally friendly business and, given all the traffic congestion, you are also the fastest service in the city since your entire crew are bicyclists. You have two types of service. You have a small parcel service for anything that is flat and measures less than 11×17. You have a package service using a 100 lb. capacity bike trailer for anything weighing up to 10 lbs. As a way to introduce the new package service when you implemented the small package service, you charged the same price for packages as parcels. You are now wondering if you should charge different prices for the parcel and package service.
Complete the table below for the packages market.
Price Packages TR MR TC MC MR-MC Profit
100 50 5,000 450 4,550
70 6,300 65 650 10 55 5,650
80
7,200 45 850 10 35 6,350
70 110 7,700 25 1,050 10 15
130 7,800 5 1,250 10 -5 6,550
50
7,500 -15 1,450 10 -25 6,050
40 170 6,800 -35 1,650 10 -45
190 5,700 -55 1,850 10 -65 3,850
20
4,200 -75 2,050 10 -85
10 230 2,300 -95 2,250 10 -105 50
Question 7
Should the delivery service charge one price or will segmentation increase profits? Support your conclusion by calculating the profit from each strategy provided in Questions 4, 5, & 6.
Question 8
You help couples book their perfect honeymoon. You currently offer plans for a cruise and for a casino stay.
Your sales manager is getting her MBA and has suggested you might consider bundling as a way to boost profits.
The table below shows the customer preferences. Your costs are $100 for the first booking and $50 for each additional booking.
“We Book Your Honeymoon Tour”
Cruise Casino
Customer 1 $7,000 $3,000
Customer 2 $2,000 $6,000
Given the preferences, would bundling improve profits over the high-price strategy? Support your conclusion by showing if (by how) profits differ under each strategy.
Question 9 Follow up question (note that the dollar amounts have not changed from the previous scenario.)
You help couples book their perfect honeymoon. You currently offer plans for a cruise and for a casino stay.
Your sales manager is getting her MBA and has suggested you might consider bundling as a way to boost profits.
The table below shows the customer preferences. Your costs are $100 for the first booking and $50 for each additional booking.
“We Book Your Honeymoon Tour”
Cruise Casino
Customer 1 $7,000 $3,000
Customer 2 $2,000 $6,000
You know that about 21% of your customers decline cruises because of seasickness. At least 12% decline the casino trip saying they don’t believe in gambling. As a rough approximation, you estimate that approximately 33% of your customers will never bundle. Given the preferences distribution, will mixed bundling increase profits? You must show the calculations that support your conclusion.
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