8.4 Price-Volume Pricing (Figures 8-23 to 8-25) The price elasticity for personal computers is estimated to be –2. For the PC manufacturer shown, evaluate the sales and profit impact of a 10% price increase and a 10% price decrease. For each pricing strategy, determine the break-even market share and discuss the profit risk associated with it.
8.4 Price-Volume Pricing (Figures 8-23 to 8-25) The price elasticity for personal computers is estimated to be –2. For the PC manufacturer shown, evaluate the sales and profit impact of a 10% price increase and a 10% price decrease. For each pricing strategy, determine the break-even market share and discuss the profit risk associated with it.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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8.4 Price-Volume Pricing (Figures 8-23 to 8-25)
- The price elasticity for personal computers is estimated to be –2. For the PC manufacturer shown, evaluate the sales and profit impact of a 10% price increase and a 10% price decrease.
For each pricing strategy, determine the break-even market share and discuss the profit risk associated with it.
Transcribed Image Text:FIGURE 8-24 PRICE-VOLUME STRATEGY AND PROFIT IMPACT
Performance Factor
Metric
Current
Strategy
Impact
Market Demand
units
50,000
10% Price
50,000
Decrease
Market Share
%
20.0%
25.0%
Volume Sold
units
10,000
12,500
Average Selling Price
$/unit
$1,000
$900
Net Sales
$
$10,000,000
$11,250,000
Unit Cost
$/unit
$700
$700
Percent Margin
%
30.0%
22.2%
Gross Profit
$3,000,000
$2,500,000
FIGURE 8-25 PRICE-VOLUME PROFITABILITY
Performance Factor
Metric
Current
Strategy
Impact
Market Demand
units
50,000
10% Price
50,000
Decrease
Market Share
%
20.0%
30.0%
Volume Sold
units
10,000
15,000
Average Selling Price
$/unit
$1,000
$900
Net Sales
$
$10,000,000
$13,500,000
Unit Cost
$/unit
$700
$700
Percent Margin
%
30.0%
22.2%
Gross Profit
$
$3,000,000
$3,000,000
|
Transcribed Image Text:FIGURE 8-23 PRICE-VOLUME SALES STRATEGY
Performance Factor
Metric
Current
Strategy
Impact
Market Demand
units
50,000
10% Price
50,000
Decrease
Market Share
%
20.0%
25.0%
Volume Sold
units
10,000
12,500
Average Selling Price
$/unit
$1,000
$900
Net Sales
$10,000,000
$11,250,000
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