Eco/561 Business Proposal Essay examples

1636 Words Jan 13th, 2013 7 Pages
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Business Proposal
Ira Johnson, Jr.
ECO/561 Economics
November 19, 2012
Dr. Caryn Callahan

Business Proposal
In an effort to better serve the CVS Pharmacy consumer base, the need to offer a wider variety of prescription medication selections and options system-wide. In this proposal, assumptions about the elasticity of demand and the market structure for these medications and expanded services will be included. Additionally, how the expansion will increase revenues will be explained. Further, a rationale for determining the profit-maximizing quantity will be provided.
Decisions will be made by using the concepts of marginal costs and marginal revenue to maximize profit. A mix of pricing and non-pricing strategies will be
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Assuming CVS uses an inventory tracking system to reduce shrinkage along with the implementation of automated dispensing and verification systems, the total profit for dispensing 80 prescriptions now rises to $600, a marginal profit of $100. To find a new profit-maximizing quantity, the assumption is the marginal profit for selling 100 prescriptions is $675—the profit-maximizing quantity still has not been reached. The sale of 120 prescriptions produces a total profit of $650 and a marginal loss of $25. Thus, the new profit-maximizing quantity is 100 prescriptions.
Marginal Cost & Revenue
An alternative method for determining the profit-maximizing quantity is to determine where marginal costs equal marginal revenue. Instead of calculating profits for each level of sales, total variable costs and total revenue are calculated. Marginal costs and marginal revenues are calculated in the same manner as marginal profit, thereby determining the amount of change for each level of sales (Huter, 2012, p.2).
Pricing & Non-Pricing Strategies
Because CVS must consider several factors affecting its business, such as: suppliers, consumer demands, competitors and their existing products, pricing strategies are complex. Options for pricing strategies may include: membership or trade pricing, geographical pricing, penetration pricing, product bundle pricing, discounts, and closeouts. Options for non-pricing strategies include:
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