Problem Set-These problems will serve as the basis for the mid-term exam. These
problems are the background you will use on the exam, but please note you will NOT
provide this document in the exam and the questions here may not exactly be replicated on
the exam. Doing the problems will build your understanding. It is recommended that you
try these problems each week at the material is presented.
1) You are serving as the chair for your community’s annual wellness campaign. A key event is
the annual Walk 3k, Run 10k, Ride 20k event. The event is staged entirely by volunteers and the
goal is to attract community wide awareness of getting active as a key step to wellness. In other
words, the goal is not to raise money, but to prompt awareness. As the chair you set a financial
goal to breakeven on the one and only cost of the event, a fitness bag with the community seal
and the event moto, “I AM ON THE RIGHT TRACK!
The cost of the bags, which must be ordered in batches of 100, are:
a) Complete the table.
b) You will charge an entry fee of $15 per participant. Determine the breakeven
quantity of bags you must order. Remember orders must be in blocks of 100.
2) Your marketing department just undertook a major advertising campaign promoting the
quality of your Best Brand Bike Shorts-BBB Shorts. They have provided you with an estimate
of the success of the campaign stating that: “the price elasticity of demand has decreased from
-5.76 to -3.76.”
Before the campaign your price was $240 per pair of BBB Shorts. What should be
the new price?
Bags Fixed Cost Variable Cost Total Cost Marginal Cost
0 1700 0
100 1700 500
200 1700 1200
300 1700 2700
400 1700 5200
500 1700 9000
600 1700 15000
700 1700 23800
800 1700 36800
900 1700 55800
1000 1700 83000
3) Seven years ago, you started a cross-town delivery service. The service is an environmentally
friendly business and, given all the traffic congestion, you are also the fastest service in the city
since your entire crew are bicyclists. You have two types of service. You have a small parcel
service for anything that is flat and measures less than 11×17. You have a package service using
a 100 lb capacity bike trailer for anything weighting up to 10 lbs. As a way to introduce the new
package service when you implemented the small package service you charged the same price
for packages as parcels. You are now wondering if you should charge different prices for the
parcel and package service.
Complete the tables below and determine the best price strategy: price the services
differently in each segment; or continue the one price policy?
Combined Parcels & Packages
The Parcels Market
Price Parcels and Packages TR MR TC MC MR-MC Profit
100 50 1600
90 120 2300
80 190 3000
70 260 3700
60 330 4400
50 400 5100
40 470 5800
30 540 6500
20 610 7200
10 680 7900
Price Parcels TR MR TC MC MR-MC Profit
100 0 1150
90 50 1650
80 100 2150
70 150 2650
60 200 3150
50 250 3650
40 300 4150
30 350 4650
20 400 5150
10 450 5650
The Packages Market
What is the best pricing strategy? Demonstrate the difference in the profit from
each strategy.
4) You help couples book their perfect honeymoon. You currently offer plans for a cruise and
for a casino stay. Your sale manager is getting her MBA and has suggested you might consider
bundling as a way to boost profits.
a) Here are the customer preferences and your cost are $100 for the first booking
and $50 for each additional booking. Compare the profit with and without
bundling. Which strategy should be used? Show your calculations.
b) The sales manager also suggests that there is a possibility that some customers
will never bundle. She says in some cases it might be possible to bundle and also
offer each customer only the trip they prefer, a practice known as mixed bundling.
You know that about 21% of your customers decline cruises because of sea sickness.
At least 12% decline the casino trip saying they don’t believe in gambling. As a
rough estimate you initially estimate that approximately 33% of your customers will
never bundle. Will mixed bundling increase profits? You must show that
calculations that support your conclusion.
Price Packages TR MR TC MC MR-MC Profit
100 50 450
90 70 650
80 90 850
70 110 1050
60 130 1250
50 150 1450
40 170 1650
30 190 1850
20 210 2050
10 230 2250
We Book Your Honeymoon Tour
Cruise Casino
Customer 1 $7,000 $3,000
Customer 2 $2,000 $6,000
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