1. Just a year after you launched the expansion of DWJ, inflation has raised your marginal cost by 7% from \$198.33 to \$212.21. Your elasticity varies for each of the three regions in which you sell your DWJ brand. In the southwestern region, your elasticity is -2.76. In your upper-western region the elasticity is -3.50. In your New England region the elasticity is -5.76.

Use %ΔQd/%ΔP = e to estimate the percentage decrease in quantity demanded if you were to raise prices in all three regions by 7%. (Do not include the negative sign when recording your answer.   Round to one decimal place, i.e. 10.135 is 10.1)

a. %ΔQd Southwestern

b. %ΔQd Upper-western

c. %ΔQd New England

2. Your current prices are \$311 in the southwestern region; \$278 in the western-region and \$240 in the New England region.  Your marginal cost is now \$212.21.  Given the predicted changes in the quantity demanded by region per problem 1 and using the stay even analysis %ΔQd = %ΔP/[%ΔP + ((P-MC)/P)], can you raise the price by 7% in any of the regional markets? State you conclusion and then show all the steps supporting your conclusion. Round to one decimal place, i.e. 10.135 is 10.1 (Note you are not being asked to compute the new price.).
• Tying as a Bundling Strategy

Ginnie has observed that her signature item, the Satisfying Smoothie, is very popular with the late evening crowd at the gym, but it is not so popular with the early crowd. The early and late crowds have only slightly different preferences for her Hydration Power Drink. The gym has a very large clientele, and Ginnie can’t always tell who has the late-crowd preference and who has the early-crowd preference.

In her graduate MBA class, they have been studying tying as a bundling strategy. Ginnie asked her professor, “Would bundling work for my business?” Her professor said, “I think you told me that the marginal costs for you two products differ significantly, so first, I would recommend that you look at the contribution margin for each. Sometimes, low prices may be more profitable and sometimes high prices will be more profitable, especially when there are large differences in the price elasticities of demand.  Second, think about the example of the Happy Meal. People are really there for the hamburger, and the company is leveraging that one item to sell other parts of the menu. What is your lead product, the item customers can’t get elsewhere?” The MC for Hydration Power Drink is \$1.00. The MC for the smoothie is \$4.00.

What is the contribution margin at each price for each product?

a) Hydration High Price contribution margin is

b) Hydration Low Price contribution margin is

c) Smoothie High Price contribution margin is

d) Smoothie Low Price contribution margin is

• Refer to Problem Set 3 for the data needed to answer the questions below:
• You have developed a self-study certification system for those who need credit hours for recertification by your state’s social welfare office. The system operates at virtually no cost, i.e., there is no marginal cost. A marketing research team has assembled the following sales information.

You are researching the options for pricing the courses. Your goal is to achieve maximum revenue to establish funding to maintain and update the system to reflect annual policy changes in licensing requirements.

Complete the calculations for Total Revenue:

a)
b)
c)
d)
e)
f)
g)
h)

•  Continuing with the Table of Certificate Programs, complete the Total Revenue for the Bundled Programs:
Online Self Certifications for Social Work License

a)
b)
c)
d)
e)
f)
g)
h)

• Using the Online Self Study Certifications table, answer the following question:
At what individual price would revenue be maximized for the Certification in Online Counseling?
• Using the Online Self Study Certifications table, answer the following question:
At what individual price would revenue be maximized for the Certification as a Group Home Counselor?
• Using the Online Self Study Certifications table, answer the following question:
What is the maximum revenue for individual pricing?
1. Using the Online Self Study Certifications table, answer the following question:
If you employed pure bundling what would be the maximum total revenue?

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