In: Economics
Discuss what you learned from the Pricing case . Post as a main point what you learned from the case. Be specific in describing what you learned and how answering the questions led to your learning. CASE is below I DON'T NEED THE PROBLEM SOLVED.. JUST WHAT THE CASE MEAN
It is April and you have recently been hired as the manager of Saco Atlantic Truffle Company in Springvale, Maine. You have been asked to improve profitability. The company got its name from a proprietary caramel truffle first sold in a coffee shop also owned by the Hill family. Note: Please use Excel for all calculations.
Complete the remainder of the week's assignment in the discussion area.
You need to calculate the price elasticity and from that we have to conclude that whether we can increase the price or not. In case of elastic demand if we will increase the price the total revenue will decline. Thus, we must not increase the price.
In case of unitary elastic, change in price has no impact.
In case of inelastic demand if we will increase the price the total revenue will increase and with decline in price revenue will decline.
I am solving one question you can solve other two on your own. If you need help contact will update the other two also.
Case1.
Given, Price, P1 = $ 51, Quantity, Q1 = 70,000
P2 = $ 46, Q2 = 75,0000
Elasticity can be measured using the following formula
A. Elasticity, e = - 0.6689 (Inelastic, since less than 1)
B. Since elasticity of demand is less than 1 (ignore negative sign) hence it is inelastic.
C. This means the product is a necessary commodity. In case of higher price also the demand does not decline significantly.
Let us assume the price is increased by 10% then, Quantity will decrease by 6.689%.
Elasticity = %change in Q/% change in P.
D. Since, elasticity of demand is inelastic therefore, a price cut will decrease the total revenue.
Here, 10 % decline in price increases quantity by 6.689%.
Decline in revenue = 6.689 - 10 = -3.31%
Proof: TR = 70,000*51 = $3,570,000
New TR = 75,000*46 = $ 3,450,000
Change in revenue = 3,450,000-3,570,000 = -$ 120,000
% change in revenue =(- 120,000/3,570,000)*100
% change in Revenue = - 3.36%
Revenue will decline by $ 120,000
E. Fixed Cost = $ 25,000
Per box cost = $ 25
Before price cut
Profit = 70,000*51 - [25,000 +25*70,000] = $ 1,795,000
After price rate
Profit = 75,000*46 - [25,000+25*75,000] = $ 1,550,000
Change in profit = $ 1,550,000 - $ 1,795,000 = - $ 245,000.
Other problems you try. If you face any difficulty contact. Will be obliged if you contact before rating up. Thank you for your generous support.