Pricing Problems Principles of Marketing 1. Price Quant.

Now $10 100 Next Month $5 150

Is this product elastic or inelastic? Why? 2. !anu"acturer o" inte#rated circuit chips has de$eloped a de!and schedule that shows the relationship %etween prices and de!and %ased on a sur$ey& as "ollows' ((Price $1 2 ) * 5 a. %. ). Nu!%er who would %uy(( )00 250 200 150 100

+raph a de!and cur$e and the total re$enue cur$e %ased on these data. What price !i#ht %e set %ased on this analysis? What other "actors should %e considered %e"ore the "inal price is set?

,ouch-& Inc. has de$eloped an addition to its .i/ard!an 0il line tentati$ely %randed 0il d1,oade. 2nit $aria%le costs are *5 cents "or a )3ounce %ottle& and hea$y !ar4etin# expenditures in the "irst year would result in total "ixed costs o" $500&000. 0il d1,oade was priced at $6.50 "or a )3ounce %ottle. 7ow !any %ottles o" 0il d1,oade !ust %e sold to %rea4 e$en? 8uppose that !ar4etin# executi$es ,ouch-& Inc. reduced the price to $9.50 "or a )3ounce %ottle o" 0il d1,oade and the "ixed costs were $1&100&000. 8uppose "urther that the unit $aria%le cost re!ained at *5 cents "or a )3ounce %ottle. a. %. 7ow !any %ottles !ust %e sold to %rea4 e$en? What dollar pro"it le$el would 0il d1,oade achie$e i" 200&000 %ottles were sold?

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:xecuti$es o" ;ando! ;ecordin#s& Inc. produced a su%li!inal i!pro$e!ent tape entitled Motivation to Market %y the 8tarshine 8isters <and. ,he cost and price in"or!ation were as "ollows' ,ape co$er 8on#writer1s royalties ;ecordin# artists1 royalties =irect !aterial and la%or costs to produce the tape >ixed cost o" producin# a tape ?ad$ertisin#& studio "ee& etc.@ 8ellin# price $1.00 0.)0 0.60 1.00 100&000.00 6.00 per al%u! per al%u! per al%u! per al%u! per al%u!

a. Prepare a %rea43e$en chart showin# total cost& "ixed cost& and total re$enue "or tape Auantity sold le$els startin# at 10&000 tapes throu#h 50&000 tapes at 10&000 tape inter$alsB that is& 10&000& 20&000& )0&000& and so on.

%. What is the %rea43e$en point "or the tape? 9. ,he 7esper Corporation is a leadin# !anu"acturer o" hi#h3Auality upholstered o""ice "urniture. Current plans call "or an increase o" $900&000 in the ad$ertisin# %ud#et. I" the "ir! sells its des4s "or an a$era#e price o" $D50 and the unit $aria%le costs are $550& then what dollar sales increase will %e necessary to co$er the additional ad$ertisin#? 8uppose executi$es esti!ate that the unit $aria%le cost "or their car phones is $100& the "ixed cost related to the product is $10 !illion annually& and the tar#et $olu!e "or the next year is 100&000 phones. What sales price will %e necessary to achie$e a tar#et pro"it o" $1 !illion? D. 8uppose a !anu"acturer o" o""ice eAuip!ent sets a su##ested price to the custo!er o" $)55 "or a particular piece o" eAuip!ent to %e co!petiti$e with si!ilar eAuip!ent. ,he !anu"acturer sells its eAuip!ent to a distri%utor who recei$es a 25 percent !ar4up and a retailer who recei$es a 50 percent !ar4up. t what price will the !anu"acturer sell the eAuip!ent to the distri%utor?

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