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ECO 550 Week 5 Quiz 1 - PROBLEM SET

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Sandra Watson
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The cost of the bags, which must be ordered in batches of 100, are:

BagsFixed CostVariable CostTotal CostMarginal Cost
017000
1001700500
20017001200
30017002700
40017005200
50017009000
600170015000
700170023800
800170036800
900170055800
1000170083000
  1. Complete the table.
  2. You will charge an entry fee of $15 per participant. Determine the breakeven quantity of bags you must order. Remember orders must be in blocks of 100

Question 2: 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.Bags Variable Cost Fixed Cost $1,700 $- 100 $500 200 300 $1,200 $2,700 $5,200 $9,000 400 Total Cost $1,700 $2,200 $2,900 $4,4

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 be the new price?

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 parcels market.

PriceParcelsTRMRTCMCMR-MCProfit
100001,150
904,500901,65010802,850
1008,000702,15010605,850
7015010,500502,65010407,850
6020012,000303,1501020
5012,500103,6501008850
30012,000-104,15010-207850
3035010,500-304,65010-40
208,000-505,15010-602850
4504,500-705,65010-80-1,150

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.

PriceParcelsTRMRTCMCMR-MCProfit
100001,150
904,500901,65010802,850
1008,000702,15010605,850
7015010,500502,65010407,850
6020012,000303,1501020
5012,500103,6501008850
30012,000-104,15010-207850
3035010,500-304,65010-40
208,000-505,15010-602850
4504,500-705,65010-80-1,150

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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