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 ordered in batches of 100, are:
Bags/Participants 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 ?
1000 $1,700 $83,000 $84,700 ?
2. Given the above information on cost, if you charge $15 per entry, what is the breakeven quantity of bags that you should order? At what quantity of bags will profits be maximized?
Please select any/all viable approaches below:
Using Qb = F/(MR – AVC) where Qb is the break even quantity, the event would break even at 283 bags.
O Using the profit-maximizing rule, MR ≥ MC, the quantity of bags that will maximize profits is 200 bags.
O Using the profit-maximizing rule, MR > MC, the quantity of bags that will maximize profits is 300 bags.
O The break even quantity cannot be determined in this case.
3. Your Best Brand Bike Shorts – BBB Shorts have been flying off the shelf. Your chief economist tells you that during the Covid-19 pandemic, “the taste for bicycling has changed. The price elasticity of demand is much more inelastic. The price elasticity of demand has decreased from -5.76 to -2.70.”
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] Show only your answer in the box. Do not include steps in the box and do not add the dollar sign.
4. Seven years ago, you started a crosstown delivery service. 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. Initially, you charged the same price for each service, but since the beginning of the Covid-19 pandemic, you have seen an increase in the demand for your package service. The demand for the package service seems to be more inelastic than the demand for parcels. You are now wondering if you should charge different prices for the parcel service and the package service, i.e. should you segment your market? Does segmentation increase profits?
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 1600 3400
90 ? 10,800 83 2.300 10 73 8,500
80 190 15,200 63 3,000 10 53 ?
? 260 18,200 43 3700 10 33 14500
60 ? 19,800 23 4400 10 13 15400
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 2850
? 100 8,000 70 2150 10 60 5850
70 150 10,500 50 2650 10 40 7850
60 200 12,000 30 3150 10 20 ?
50 ? 12,500 10 3650 10 0 8850
? 300 12,000 -10 4150 10 -20 7850
30 350 10,500 -30 4650 10 -40 ?
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. Determine the maximum profit for the combined market, i.e. 1 price for both services, and show the maximum profit if the market is segmented into sub-markets for parcels and packages, charging 2 differnt prices.
You operate a Caribbean destination resort. You currently offer plans for a cruise departing from the resort and plans for a casino stay. It is expected that in 2021 there will be some return to more normal travel. You will re-launch your advertising for 2021 announcing that customers will be able to do both for one price. Your marginal cost per customer is $4800.
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, bundle versus high price.
9. You operate a Caribbean destination resort. You currently offer plans for a cruise departing from the resort and plans for a casino stay. It is expected that in 2021 there will be some return to more normal travel. You will re-launch your advertising for 2021 announcing that customers will be able to do both for one price. Your marginal cost per customer is $4800.
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 the mixed bundling increase profits? You must show the calculations that support your conclusion.
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