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a. Evaluate the impact of the price cut on the (i) total revenue and (ii) contribution margin of Model A. Based on this analysis, should the firm lower the price of Model A? Explain b. Evaluate the impact of the price cut on the (i) total revenue and (ii) contribution margin for the entire line of tennis rackets. c. Based on this analysis, should the firm lower the price of Model A? Explain

a. Evaluate the impact of the price cut on the (i) total revenue and (ii) contribution margin of Model A. Based on this analysis, should the firm lower the price of Model A? Explain b. Evaluate the impact of the price cut on the (i) total revenue and (ii) contribution margin for the entire line of tennis rackets. c. Based on this analysis, should the firm lower the price of Model A? Explain

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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The company is considering lowering the price of Model A to $27 in an effort to increase the number of units sold. Based on the results of price changes that have been instituted in the past, Tennis Products’ chief economist estimates the arc price elasticity of demand to be –2.5. Furthermore, she estimates the arc cross elasticity of demand between Model A and Model B to be approximately 0.5 and between Model A and Model C to be approximately 0.2. Variable costs per unit are not expected to change over the anticipated changes in volume.

a. Evaluate the impact of the price cut on the (i) total revenue and (ii) contribution margin of Model A. Based on this analysis, should the firm lower the price of Model A? Explain

b. Evaluate the impact of the price cut on the (i) total revenue and (ii) contribution margin for the entire line of tennis rackets.

c. Based on this analysis, should the firm lower the price of Model A? Explain

Tennis Products, Inc, produces three models of high-quality tennis rackets. The following table contains recent information on the sales, costs, and profitability of the three models: MODEL AVERAGE CURRENT TОTAL VARIABLE CONTRIBUTION CONTRIBUTION QUANTITY PRICE($) REVENUE($) COST PER MARGIN PER MARGIN($) SOLD (UNITS/ UNIT($) UNIT($) MONTH) A 15,000 $30 $450,000 $15.00 $15 $225,000 В 5,000 $35 $175,000 $18.00 $17 $85,000 C 10,000 $45 $450,000 $20.00 $25 $250,000 Total $1,075,000 $$560,000 *Contribution to fixed costs and profits.
Transcribed Image Text:Tennis Products, Inc, produces three models of high-quality tennis rackets. The following table contains recent information on the sales, costs, and profitability of the three models: MODEL AVERAGE CURRENT TОTAL VARIABLE CONTRIBUTION CONTRIBUTION QUANTITY PRICE($) REVENUE($) COST PER MARGIN PER MARGIN($) SOLD (UNITS/ UNIT($) UNIT($) MONTH) A 15,000 $30 $450,000 $15.00 $15 $225,000 В 5,000 $35 $175,000 $18.00 $17 $85,000 C 10,000 $45 $450,000 $20.00 $25 $250,000 Total $1,075,000 $$560,000 *Contribution to fixed costs and profits.
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