Pricing and Production Decisions at Poolvac, Inc.

1575 WordsJul 9, 20137 Pages
Read the case on Pricing and Production Decisions at PoolVac. Inc and answer the questions given below the case. Use the appropriate techniques given in the text book on Pricing and Production Decision and then make your judgments based on the results. Also refer to the chapter on estimation of demand and elasticity to determine the effect of price elasticity on demand. Show the results, calculations and your comments clearly in a legible manner or in typing. Annex the excel data sheets for reference. CONSULTING PROJECT Pricing and Production Decisions at PoolVac, Inc. PoolVac, Inc. manufactures and sells a single product called the “Sting Ray,” which is a patent-protected automatic cleaning device for swimming pools. PoolVac’s…show more content…
believes Howard Industries is going to price its automatic pool cleaner at $250, and average household income in the U.S. is expected to be $65,000. Using the regression results from part 2 a, write the estimated demand function, inverse demand function, and marginal revenue function. Demand: ____________________________ Inverse Demand: ____________________________ Marginal Revenue: ____________________________ 3. Using your estimated cost and demand functions from parts 1 and 2, what price would you recommend the manager of PoolVac, Inc. charge for its Sting Ray? Given your recommended price, estimate the number of units PoolVac can expect to sell, as well as its monthly total revenue, total cost, and profit. P: ___________ Q: ___________ TR: ___________ TC: ___________ Profit: ___________ 4. For the profit-maximizing solution in question 3, compute the point elasticity of demand for Sting Rays. E = ______________ In the profit-maximizing situation in question 3, a 5 percent price cut would be predicted to _______________ (increase, decrease) quantity demanded of Sting Rays by ___________ percent, which would cause total revenue to _____________ (rise, fall, stay the same) and profit to _____________ (rise, fall, stay the same). 5. For the profit-maximizing solution in question 3, compute the income elasticity of demand for Sting Rays. EM = ______________ a. Is the algebraic sign of the income elasticity as you expected?
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