Consider a global pharmaceuticals leader that produces an over-the-counter medication that reduces exam-related anxiety. The product is currently protected by a patent, though similar products are reportedly under development. Two years ago, the firm sold 25 million units of the medication at a price of $10 per package (10 doses). Last year, the firm raised the price to $11 and sold 22 million units. The estimated cost of production is constant at $3 per package. Now consider that the firm's patent expired at the end of last year, and immediately the similar (but differentiated) products are now available to customers. With new competitors in the market, the firm would like to release a collection of advertisements aimed at increasing the sale of its medication. Given that the firm's advertising elasticity of demand (AED) is 0.1608, from the total revenue earned last year, the firm should spend?

Consider a global pharmaceuticals leader that produces an over-the-counter medication that reduces exam-related anxiety. The product is currently protected by a patent, though similar products are reportedly under development. Two years ago, the firm sold 25 million units of the medication at a price of $10 per package (10 doses). Last year, the firm raised the price to $11 and sold 22 million units. The estimated cost of production is constant at $3 per package. Now consider that the firm's patent expired at the end of last year, and immediately the similar (but differentiated) products are now available to customers. With new competitors in the market, the firm would like to release a collection of advertisements aimed at increasing the sale of its medication. Given that the firm's advertising elasticity of demand (AED) is 0.1608, from the total revenue earned last year, the firm should spend?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter14: Pricing Techniques And Analysis

Section: Chapter Questions

Problem 7E

See similar textbooks

Similar questions

Thranduil company’s market research department is working on the pricing of a product. The field research shows that average demand is expected to be 8000 units at price 50 TL. From this point, each 1 TL change in price will negatively affect demand with a magnitude of 100 units. Fixed and variable costs are confronted for producing the product. According to the information obtained from the financial department, 200,000 TL is the estimate of fixed costs and 20 TL is the estimate of variable costs per unit produced. Assume that all units produced are sold.Which of the following prices is the one that maximizes the company's profit?
A large company in the communication and publishing industry has quantified the relationship between the price of one of its products and the demand for this product as Price=160−0.02×Demand for an annual printing of this particular product. The fixed costs per year (i.e., per printing)=$47,000 and the variable cost per unit=$40. What is the maximum profit that can be achieved? What is the unit price at this point of optimal demand? Demand is not expected to be more than 4,000 units per year. The maximum profit that can be achieved is $? (Round to the nearest dollar.) The unit price at the point of optimal demand is $? per unit.
Based on the best available econometric estimates, the market elasticity of demand for your firm’s product is −3.0. The marginal cost of producing the product is constant at $150, while average total cost at current production levels is $215. Determine your optimal per unit price if: Instructions: Enter your responses rounded to two decimal places.
C&A Fast Food has four activities in serving a customer: greet customer, take order, process order, and deliver order. Each activity is staffed by one employee (for a total of four employees). The processing time for each activity is given as follows: Greet customer Take order Process order Deliver order Activity Processing time per customer 2 seconds 30 seconds 60 seconds 5 seconds Assume demand is unlimited. If one additional employee is added to the bottleneck activity, what will be the percentage change in process capacity?
Assume a company expects to sell 6 million packages of Pop-Tarts Gone Nutty! in the first year after introduction but expects that 70 percent of those sales will come from buyers who would normally purchase existing Pop-Tart flavors (that is, cannibalized sales). The price for a package of Pop-Tarts Gone Nutty! is $1.30 and its variable cost is $0.65, when the price for a package of original Pop-Tart is $1.10 with variable cost of $0.30. Assuming the sales of regular Pop-Tarts are normally 300 million packages per year and that the company will incur an increase in fixed costs of $450,000 during the first year to launch Gone Nutty! will the new product be profitable for the company? Determine the unit contributions and the loss for every package cannibalized from the original product. (Round to the nearest cent.) Unit contribution original Pop-Tarts $ Pop-Tarts Gone Nutty! Loss for every package cannibalized S
Question 2 options: Consider a global pharmaceuticals leader that produces an over-the-counter medication that reduces exam-related anxiety. The product is currently protected by a patent, though similar products are reportedly under development. Two years ago, the firm sold 25 million units of the medication at a price of $10 per package (10 doses). Last year, the firm raised the price to $11 and sold 22 million units. The estimated cost of production is constant at $3 per package. Using the price elasticity of demand from $10 to $11, the estimated marginal revenue at 25 million units of medication is?
You are an analyst at a chipmaking company that is part of a supply chain that involves chipmaking and memory drive manufacturing. Each unit of product created by the supply chain generates $7 in perceived consumer value and has a cost of $2. Your company is the only one that can make chips and there are many undifferentiated memory drive manufacturers. You expect your profit per unit to be close to: $7 $5 $2 $0
You are a small retailer. You make profit by buying from a large producer and reselling at your store. The price you're selling at does not change with how many units you sell. The producer recently raised their price to 150 a unit, so you're considering vertical integration and making your own products. If the fixed cost of vertical integrating is 1,200 and you can produce with a cost of 70 per unit, how many units do you have to sell for the vertical integration to yield the same profit as before? Enter your answer here
A company can produce 7,000 units of smartphones in a month. The fixed cost is $65,000 per month, and the variable cost is $79 per unit. The selling price is p = $150 – 0.01D. a. Determine the optimal volume for this product and its percentage of the total capacity. Confirm that a profit occurs at this demand. b. Find the volumes at which breakeven occurs; that is, what is the range of profitable demand?
You manufacture ceramic lawn ornaments. After several months your accountant tells you that your profit P(n) can be modeled by the function P(n)= -0.002n^2+5.2n-1208 where n is number of ornaments sold each month. A) How many ornaments must you make and sell to break even. B) How many ornaments must you make and sell to maximize profit. C) What is the maximum profit. D) How many ornaments must you make and sell in order to earn a profit of $1657.
The Hickory Cabinet and Furniture Company makes chairs. The fixed cost per month of making chairs is $7,500, and the variable cost per chair is $40. Price is related to demand, according to the following linear equation: v = 400 - 1.2p Develop the nonlinear profit function for this company and determine the price that will maximize profit, the optimal volume, and the maximum profit per month.
Suppose that you can sell as much of a product (in integer units) as you like at $60 per unit. Your marginal cost (MC) for producing the qth unit is given by: MC = 7q This means that each unit costs more to produce than the previous one (e.g., the first unit costs 7*1, the second unit (by itself) costs 7*2, etc.). If fixed costs are $80, what is the optimal integer output level? Please specify your answer as an integer. If fixed costs are $80, what is the profit at the optimal integer output level? Please specify your answer as an integer.