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  1. Assignment • Read course PowerPoint file: MBD 2 Proj1.pptx (Slides 35-63)

  2. Demand • Demand represents price • The “x-axis” will be a “q-axis” representing quantity • The “y-axis” will be a “D(q)-axis” representing price

  3. Demand • Formulas given in two ways: - Stated explicitly - Found using trend lines

  4. Demand • Typical Graph: (note intercepts, note no negatives)

  5. Demand • q-intercept: max quantity (price is $0) • D(q)-intercept: max price (quantity is 0 units)

  6. Demand • Questions to consider: • How do you determine the q-intercept? • How do you determine the D(q)-intercept?

  7. Revenue • Revenue represents total inflow of money • The “x-axis” will be a “q-axis” representing quantity • The “y-axis” will be a “R(q)-axis” representing revenue • Formula found from , never from trend lines for the project

  8. Revenue • Typical Graph: (note intercepts and max. point, note no negatives)

  9. Revenue • First intercept: 0 quantity gives $0 revenue • Second intercept: $0 price gives $0 revenue • Max point: maximum revenue

  10. Revenue • Questions to consider: • How do you determine the maximum point? • What does the q-value represent? • What does the R(q)-value represent?

  11. Cost • Cost represents total outflow of money • Total cost has 2 components: - Fixed Cost: - Variable Cost:

  12. Cost • Fixed Cost is preproduction cost • Variable Cost is a per unit cost • Formula either given or constructed using given info

  13. Cost • Typical Graph: (note graph always increases, note no negatives)

  14. Cost • Note at q = 0, C(q)-intercept is above q-axis due to fixed cost

  15. Profit • Profit represents net income • Profit is revenue minus cost

  16. Profit • Typical Graph: (Note intercepts and maximum, note graph can be negative)

  17. Profit • Intercepts: Break-even points ($0 profit) • Max. point: Maximum profit • Profit can be negative

  18. Revenue • Questions to consider: • How do you determine the maximum point? • What does the q-value represent? • What does the P(q)-value represent? • How do you determine the q-intercepts?

  19. Demand, Revenue, Cost, & Profit • Ex.Suppose the following data represents the total pairs of shoes sold in a month at a particular price in dollars. Use a second degree polynomial trend line to find an approximate model for the demand function

  20. Demand, Revenue, Cost, & Profit

  21. Demand, Revenue, Cost, & Profit • Generating graph of revenue • Use “Plotting Points” method • Use interval [0, q] where q is the q-intercept from Demand graph

  22. Demand, Revenue, Cost, & Profit

  23. Demand, Revenue, Cost, & Profit • Optimal quantity to maximize revenue is about 800 units. • Maximum Revenue is about $36,000 • Price should be about $45

  24. Demand, Revenue, Cost, & Profit • Ex. If the fixed cost is $2000 and the variable cost is $35 per unit, determine a formula for total cost and graph C(q). • C(q) = 2000 + 35q

  25. Demand, Revenue, Cost, & Profit

  26. Demand, Revenue, Cost, & Profit • Use the graphs of revenue and cost to determine the approximate quantities where profit is zero. • Use the graphs of revenue and cost to determine the approximate quantity where profit is maximized. • What is the maximum profit?

  27. Demand, Revenue, Cost, & Profit • Graph of Revenue and Cost (determine profit)

  28. Demand, Revenue, Cost, & Profit • Quantities where profit is zero: 50 units and 925 units • Quantity where profit is maximized: 500 units • Maximum profit: $11,000

  29. Demand, Revenue, Cost, & Profit • Profit function: P(q) = R(q) - C(q)

  30. Demand, Revenue, Cost, & Profit • Use the graph of profit to determine the approximate quantities where profit is zero. • Use the graphs of profit to determine the approximate quantity where profit is maximized. • What is the maximum profit?

  31. Demand, Revenue, Cost, & Profit • Quantities where profit is zero: 50 units and 925 units • Quantity where profit is maximized: 500 units • Maximum profit: $11,000

  32. Demand, Revenue, Cost, & Profit • Project(Demand)

  33. Demand, Revenue, Cost, & Profit • Project(Demand) • Determine the projected national sales

  34. Demand, Revenue, Cost, & Profit • Project(Demand)

  35. Demand, Revenue, Cost, & Profit • Project - Determine quadratic demand trend line (8 decimal places)

  36. Demand, Revenue, Cost, & Profit • Project

  37. Demand, Revenue, Cost, & Profit • Project • q-intercept found by setting D(q) = 0 and solving by using the quadratic formula • D(q)-intercept found by setting q = 0

  38. Demand, Revenue, Cost, & Profit • Project • q-intercept is about (2480.767, 0) • This means that the maximum number of units that could be produced and sold (for $0) are 2,480,767 • D(q)-intercept is about (0, 414.53) • This means that the maximum price that could be set (selling 0 units) is $414.53

  39. Demand, Revenue, Cost, & Profit • Project - Keep units straight - Prices (dollars) - Revenue (millions of dollars) - Quantities in test markets (whole units) - Quantities in national market (thousands of units)

  40. Demand, Revenue, Cost, & Profit • Project (Revenue) - Units should be millions of dollars - Typically - Must adjust for units

  41. Demand, Revenue, Cost, & Profit • Project (Revenue) Must convert revenue to millions of dollars ***Use this formula

  42. Demand, Revenue, Cost, & Profit • Project (Revenue) – use “plotting points” method

  43. Demand, Revenue, Cost, & Profit • Project (Cost) • Ex. Calculate the total cost for 1.5 million units

  44. Demand, Revenue, Cost, & Profit • Project (Cost) - Use COST function from Marketing Focus.xlsx - Open Marketing Focus.xlsxand your Excel file - If you do not see the “Developer tab” click the Microsoft Office button, Excel options, Popular, Show developer tab

  45. Demand, Revenue, Cost, & Profit • Project (Cost) - Click on Developer tab, Visual Basic - In the side bar, select VBAProjects(Marketing Focus.xlsx)

  46. Demand, Revenue, Cost, & Profit • Project (Cost) - Locate Module 1 under VBAProject (Marketing Focus.xlsx) - Drag Module 1 into your Excel file - Close Visual Basic file

  47. Demand, Revenue, Cost, & Profit • Project (Cost) 7 parameters for COST function quantity fixed cost batch size 1 batch size 2 marginal cost 1 marginal cost 2 marginal cost 3

  48. Demand, Revenue, Cost, & Profit • Project (Revenue and Cost) - Graph both R(q) and C(q) - Use “plotting points” method - COST function: Insert/Function/User Defined

  49. Demand, Revenue, Cost, & Profit • Project (Revenue and Cost)

  50. Demand, Revenue, Cost, & Profit • Project (Profit – note the two “peaks”)