ECO 550 Week 5 Problem set

 

Problem Set-These problems will serve as the basis for the mid-term exam. These problems are the background you will use on the exam, but please note you will NOT provide this document in the exam and the questions here may not exactly be replicated on the exam. Doing the problems will build your understanding. It is recommended that you try these problems each week at the material is presented. 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 breakeven on the one and only cost of the event, a fitness bag with the community seal and the event moto, “I AM ON THE RIGHT TRACK! The cost of the bags, which must be ordered in batches of 100, are: a) Complete the table. b) 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. 

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2) 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 that: “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? Bags Fixed Cost Variable Cost Total Cost Marginal Cost 0 1700 0 100 1700 500 200 1700 1200 300 1700 2700 400 1700 5200 500 1700 9000 600 1700 15000 700 1700 23800 800 1700 36800 900 1700 55800 1000 1700 83000 3) Seven years ago, you started a cross-town 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 11x17. You have a package service using a 100 lb capacity bike trailer for anything weighting 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 tables below and determine the best price strategy: price the services differently in each segment; or continue the one price policy? Combined Parcels & Packages The Parcels Market Price Parcels and Packages TR MR TC MC MR-MC Profit 100 50 1600 90 120 2300 80 190 3000 70 260 3700 60 330 4400 50 400 5100 40 470 5800 30 540 6500 20 610 7200 10 680 7900 Price Parcels TR MR TC MC MR-MC Profit 100 0 1150 90 50 1650 80 100 2150 70 150 2650 60 200 3150 50 250 3650 40 300 4150 30 350 4650 20 400 5150 10 450 5650 The Packages Market What is the best pricing strategy? Demonstrate the difference in the profit from each strategy. 4) You help couples book their perfect honeymoon. You currently offer plans for a cruise and for a casino stay. Your sale manager is getting her MBA and has suggested you might consider bundling as a way to boost profits. a) Here are the customer preferences and your cost are $100 for the first booking and $50 for each additional booking. Compare the profit with and without bundling. Which strategy should be used? Show your calculations. b) The sales manager also suggests that there is a possibility that some customers will never bundle. She says in some cases it might be possible to bundle and also offer each customer only the trip they prefer, a practice known as mixed bundling. You know that about 21% of your customers decline cruises because of sea sickness. At least 12% decline the casino trip saying they don’t believe in gambling. As a rough estimate you initially estimate that approximately 33% of your customers will never bundle. Will mixed bundling increase profits? You must show that calculations that support your conclusion.