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Bruin at Work

Bruin at Work. Wendy Phu Antonio Olmos Zhiyun Chen ( Evonne ). Outline. Objective Data Analysis Recommendation Changes in Market Demand Conservatism Appendix. Objective. Determine whether the primary product of the division is being priced correctly

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Bruin at Work

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  1. Bruin at Work Wendy Phu Antonio Olmos Zhiyun Chen (Evonne)

  2. Outline • Objective • Data • Analysis • Recommendation • Changes in Market Demand • Conservatism • Appendix

  3. Objective • Determine whether the primary product of the division is being priced correctly • Determine how product price and output are affected by changes in market demand • Determine how conservatism would affect product price and output

  4. Data • Plant Manager Projections • Output (per month) is 2500 • Plant cost is $40,000.

  5. Data…(cont.) • Marketing Manager Projections • Price is $20 • Sales are 2,500 units

  6. Analysis • Derive firm’s supply curve From this we determined that the Marginal Cost curve is MC=-.0024q + 15.94

  7. Analysis…(cont.) • Derive firm’s demand curve From this we determined that the Marginal Revenue curve is: MR= -0.007q + 29.224

  8. Analysis…(cont.) • Data suggests that the optimal price for product is below $20

  9. Recommendation • Decrease price to $19.12 • Increase production to 2,888 units

  10. Changes in Market Demand • Demand were to rise by 10% at every price

  11. Changes in Market Demand… • Product should be priced at $18.60 • Production should increase to 3,321 units

  12. Conservatism • Sales projections are overestimated

  13. Conservatism…(cont.) • Product should be priced at $18.94 • Production should increase to 2,729 units

  14. Appendix • (a) How are you going to use these data to evaluate the pricing policy of the firm?

  15. Appendix… • (b) Suppose that demand were to rise by 10% at every price. What would be your new? Recommendation?

  16. Appendix… • (c) Sensitivity analysis. Returning to the data supplied by the marketing manager, how much would your answer change if her answers were a bit optimistic? Our answer would change from $19.12 to $18.94. Our equilibrium price would decease along with our equilibrium quantity. Given that her analysis were a bit optimistic, we assume that the actually quantity demands by consumers to be lower than the numbers we have. This would be similar to a inward shift of the demand curve and thereby explain the conclusions to we have arrived to. An inward shift of the demand curve means that fewer quantities are demanded and prices would decrease.

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