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 break even on the one and only cost of the event, a fitness bag with the community seal and the event motto, “I AM ON THE RIGHT TRACK!”

The cost of the bags, which must be ordered in batches of 100, are:

Bags/Participants      Fixed Cost     Variable Cost     Total Cost     Marginal Cost

0                                    \$1,700           \$ –                       \$1,700

100                                  \$1,700          \$500                    \$2,200                ?

200                                    \$1,700        \$1,200                   \$2,900                ?

300                                  \$1,700          \$2,700                  \$4,400                ?

400                                  \$1,700          \$5,200                  \$6,900                ?

500                                   \$1,700         \$9,000                  \$10,700              ?

600                                   \$1,700         \$15,000                \$16,700              ?

700                                    \$1,700        \$23,800                \$25,500              ?

800                                    \$1,700        \$36,800                \$38,500              ?

900                                     \$1,700       \$55,800                \$57,500              ?

1000                                   \$1,700       \$83,000                \$84,700              ?

2.  Given the above information on cost, if you charge \$15 per entry, what is the breakeven quantity of bags that you should order?  At what quantity of bags will profits be maximized?

Please select any/all viable approaches below:

Using Qb = F/(MR – AVC) where Qb is the break even quantity, the event would break even at 283 bags.

O   Using the profit-maximizing rule, MR ≥ MC, the quantity of bags that will maximize profits is 200 bags.

O   Using the profit-maximizing rule, MR > MC, the quantity of bags that will maximize profits is 300 bags.

O   The break even quantity cannot be determined in this case.

3.   Your Best Brand Bike Shorts – BBB Shorts have been flying off the shelf. Your chief economist tells you that during the Covid-19 pandemic, “the taste for bicycling has changed. The price elasticity of demand is much more inelastic. The price elasticity of demand has decreased from -5.76 to -2.70.”

Before the campaign, your price was \$240 per pair of BBB Shorts. What should the new price be?

Please enter the new price here: \$ [a] Show only your answer in the box. Do not include steps in the box and do not add the dollar sign.

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4.   Seven years ago, you started a crosstown delivery service. 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 weighing up to 10 lbs. Initially, you charged the same price for each service, but since the beginning of the Covid-19 pandemic, you have seen an increase in the demand for your package service. The demand for the package service seems to be more inelastic than the demand for parcels. You are now wondering if you should charge different prices for the parcel service and the package service, i.e. should you segment your market? Does segmentation increase profits?

Complete the table below for the combined market of parcels and packages.

Price                 Parcels and Packages             TR                   MR              TC              MC               MR-MC              Profit

?                                 50                                      5,000                                  1600                                                          3400

90                               ?                                        10,800            83                 2.300        10                73                         8,500

80                              190                                   15,200              63               3,000         10                53                            ?

?                                260                                    18,200             43               3700           10               33                           14500

60                                ?                                       19,800             23               4400           10               13                            15400

5.  Seven years ago, you started a crosstown 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 weighing 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 table below for the parcels market.

Price            Parcels          TR             MR              TC                MC           MR-MC                  Profit

100                0                    0                                 1,150                                                                  ?

90                  ?                    4,500       90               1,650              10             80                          2850

?                  100                  8,000       70               2150                10            60                          5850

70                 150                 10,500     50               2650                 10           40                          7850

60                  200                12,000      30                3150                 10           20                           ?

50                   ?                    12,500    10               3650                 10          0                              8850

?                    300                 12,000    -10              4150                 10          -20                            7850

30                  350                  10,500    -30             4650                  10          -40                           ?

7.   Should the delivery service charge one price or will segmentation increase profits?  Support your conclusion using the profits calculated in Questions 4, 5, & 6.  Determine the maximum profit for the combined market, i.e. 1 price for both services, and show the maximum profit if the market is segmented into sub-markets for parcels and packages, charging 2 differnt prices.

You operate a Caribbean destination resort. You currently offer plans for a cruise departing from the resort and plans for a casino stay. It is expected that in 2021 there will be some return to more normal travel. You will re-launch your advertising for 2021 announcing that customers will be able to do both for one price.  Your marginal cost per customer is \$4800.

Customer Preferences

Cruise               Casino

Customer 1      \$7,000                 \$3,000

Customer 2        \$2,000             \$6,000

Given the preferences, would bundling improve profits over the high-cost strategy?  Support your conclusion by showing if (by how much) profits differ under each strategy, bundle versus high price.

9.         You operate a Caribbean destination resort. You currently offer plans for a cruise departing from the resort and plans for a casino stay. It is expected that in 2021 there will be some return to more normal travel. You will re-launch your advertising for 2021 announcing that customers will be able to do both for one price. Your marginal cost per customer is \$4800.

Customer Preferences

Cruise               Casino

Customer 1         \$7,000                \$3,000

Customer 2       \$2,000                \$6,000

You know that about 21% of your customers decline cruises because of seasickness. At least 12% decline the casino trip saying they don’t believe in gambling. As a rough approximation, you estimate that approximately 33% of your customers will never bundle. Given the preferences distribution, will the mixed bundling increase profits? You must show the calculations that support your conclusion.