Managerial Economics (MindTap Course List)
4th Edition
ISBN: 9781305259331
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Chapter 5, Problem 5.6IP
To determine
The break-even
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In many cities, discount clubs are popular. For a fixed annual
fee (paid in advance) one can purchase goods at 90% of their
listed price (in other words, 10% off the list price); otherwise,
one pays the list price. Suppose that the annual fee is $300
and the interest rate on your savings account is 5%. Finally,
assume discount club's list prices are the same as any other
store, and you plan to spend $4000 over the coming year at
this store. (Hint: the interest represents an opportunity cost
of purchasing a membership).
benefit
not buying
is
a membership
I
dollars and the cost of not buying
The
of
a membership is
dollars.
Please record your answer without a dollar sign or a comma.
Paolo lives in Philadelphia and operates a small company selling scooters. On average, he receives $712,000 per year from selling scooters. Out of this revenue from sales, he must pay the manufacturer a wholesale cost of $412,000. He also pays several utility companies, as well as his employees wages totaling $269,000. He owns the building that houses his storefront; if he choose to rent it out, he would receive a yearly amount of $1,000 in rent. Assume there is no depreciation in the value of his property over the year. Further, if Paolo does not operate the scooter business, he can work as a nurse and earn a yearly salary of $21,000 with no additional monetary costs, and rent out his storefront at the $1,000 per year rate. There are no other costs faced by Paolo in running this scooter company.
(Questions in images)
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
Chapter 5 Solutions
Managerial Economics (MindTap Course List)
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