II. Problem1. Tennis Products, Inc., produces three models of high-quality tennis rackets. The following tablecontains recent information on the sales, costs, and profitability of the three models:AverageQuantity Sold(Units/Month)15,0005,00010,000Variable,Cost perContributionCurrentPriceTotalMargin PerUnitContributionModelRevenueUnitMargin*$225,00085,000250,000$560,000A$30$450,000175,000450,000$1,075,000$15$15B351817C452025Total* Contribution to fixed costs and profits.The company is considering lowering the price of Model A to $27 in an effort to inçrease thenumber of units sold. Based on the results of price changes that have been instituted in thepast, 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 Bto be approximately 0.5 and between Model A and Model C to be approximately 0.2. Variablecosts per unit are not expected to change over the anticipated changes in volume.Evaluate the impact of the price cut on the (i) total revenue, and (ii) contribution marginof Model A. Based on this analysis, should the firm lower the price of Model A?a.Evaluate the impact of the price cut on the (i) total revenue, and (ii) contribution marginfor the entire line of tennis rackets. Based on this analysis, should the firm lower theb.price of Model A?

Contribution margin {CM} is described as the difference between the variable costs that are used to…

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

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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