Question

Eastman Publishing Company is considering publishing an electronic textbook about spreadsheet applications for business. The fixed cost of manuscript preparation, textbook design, and web-site construction is estimated to be $155,000. Variable processing costs are estimated to be $6 per book. The publisher plans to sell single-user access to the book for $47.

Through a series of web-based experiments, Eastman has created a predictive model that estimates demand as a function of price. The predictive model is demand = 4,000 - 6p, where p is the price of the e-book.

(a)	Build a spreadsheet model to calculate the profit/loss for a given demand. What is the demand?
(b)	Use Goal Seek to calculate the price that results in breakeven. If required, round your answer to two decimal places.
	$
(c)	Use a data table that varies price from $50 to $400 in increments of $25 to find the price that maximizes profit.
	If Eastman sells the single-user access to the electronic book at a price of $ , it will earn a maximum profit of $ .

Answer 1

Demand = 4000-6p

Fixed cost=$155,000

Variable Cost = $6

Selling price = p= 47

Total Cost = Fixed Cost + Variable cost x Demand =  155,000 +6*(4000-6p)

Revenue= 47*Demand

Profit=Revenue - Total Cost

a)   Build a spreadsheet model to calculate the profit/loss for a given demand. What is the demand?

Prepare the following sheet

get this

ans: The demand when the single-user access to the book for $47 is 3,718

(b)   Use Goal Seek to calculate the price that results in breakeven. If required, round your answer to two decimal places.

The break even profit is the price for which the profit is equal to 0

Set up the goal seek, using data---> what if analysis-->goal seek

get this

ans: the price that results in breakeven is $47.74

(c)   Use a data table that varies price from $50 to $400 in increments of $25 to find the price that maximizes profit.
If Eastman sells the single-user access to the electronic book at a price of $ , it will earn a maximum profit of $ .

add the following table

select the table that is added above and using data--->what if analysis--->data table, set up the following

get this

We can see that at $325, the profit is maximum

ans: If Eastman sells the single-user access to the electronic book at a price of $325 , it will earn a maximum profit of $498950