1) 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 ed 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 |
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 | $83,00 | $84,700 |
Given the above information on cost, if you charge $15 per entry, what is the breakeven quantity of bags that you should ? 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-MC) where Qb is the breakeven quantity to be determined, the optimal quantity of bags is 300. | ||
| Use Qb = F/(MR-MC) where Qb is the breakeven quantity to be determined, the optimal quantity of bags is 200. |
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]
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 |
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 |
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 |
Essay Questions
7) Should the delivery service charge one price or will segmentation increase profits? Support your conclusion using the profits calculated in Questions 4, 5, & 6.
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 in a customer’s name 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-cost strategy? Support your conclusion by showing if (by how much) profits differ under each strategy.
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 mixed bundling as a way to boost profits. The table below shows the customer preferences. Your costs are $100 for the first booking in a customer’s name and $50 for each additional booking in the same customer’s name.
“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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