Please II. Problem1. Tennis Products, Inc., produces three models of high-quality tennis rackets. The following tablecontains recent information on the sales, costs, and profitability of the three models:AverageQuantity Sold(Units/Month)15,0005,00010,000Variable,Cost perContributionCurrentPriceTotalMargin PerUnitContributionModelRevenueUnitMargin*$225,00085,000250,000$560,000A$30$450,000175,000450,000$1,075,000$15$15B351817C452025Total* Contribution to fixed costs and profits.The company is considering lowering the price of Model A to $27 in an effort to inçrease thenumber of units sold. Based on the results of price changes that have been instituted in thepast, Tennis Products' chief economist estimates the arc price elasticity of demand to be -2.5.Furthermore, she estimates the arc cross elasticity of demand between Model A and Model Bto be approximately 0.5 and between Model A and Model C to be approximately 0.2. Variablecosts per unit are not expected to change over the anticipated changes in volume.Evaluate the impact of the price cut on the (i) total revenue, and (ii) contribution marginof Model A. Based on this analysis, should the firm lower the price of Model A?a.Evaluate the impact of the price cut on the (i) total revenue, and (ii) contribution marginfor the entire line of tennis rackets. Based on this analysis, should the firm lower theb.price of Model A?

Contribution margin refers to the difference between the product price and variable cost of…

Evaluate the impact of the price cut on the (i) total revenue, and (ii) contribution margin of Model A. Based on this analysis, should the firm lower the price of Model A? a. b. Evaluate the impact of the price cut on the (i) total revenue, and (ii) contribution margin for the entire line of tennis rackets. Based on this analysis, should the firm lower the price of Model A?

Evaluate the impact of the price cut on the (i) total revenue, and (ii) contribution margin of Model A. Based on this analysis, should the firm lower the price of Model A? a. b. Evaluate the impact of the price cut on the (i) total revenue, and (ii) contribution margin for the entire line of tennis rackets. Based on this analysis, should the firm lower the price of Model A?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 5E

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Tennis Products, Inc., produces three models of high-quality tennis rackets. The following table contains recent information on the sales, costs, and profitability of the three models: MODEL AVERAGEQUANTITYSOLD (UNITS/MONTH) CURRENTPRICE TOTALREVENUE VARIABLECOST PERUNIT CONTRIBUTIONMARGIN PERUNIT CONTRIBUTIONMARGIN* A B C Total 15,000 5,000 10,000 $30 35 45 $450,000 175,000 450,000 $1,075,000 $15.00 18.00 20.00 $15 17 25 $225,000 85,000 250,000 $560,000 *Contribution to fixed costs and profits.The company is considering lowering the price of Model A to $27 in an effort to increase the number of units sold. Based on the results of price changes that have been instituted in the past, Tennis Products’ chief economist estimates the arc price elasticity of demand to be –2.5. Furthermore, she estimates the arc cross elasticity of demand between Model A and Model B to be approximately 0.5 and between Model A and Model C to be approximately 0.2. Variable costs…
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