Office Enterprises (OE) produces a line of metal office file cabinets. The company's economist, having investigated a large number of past data, has established the following equation, of demand for these cabinets:
Q = 10,000 + 60b - 100P + 50C
where Q = Annual number of cabinets sold
B = Index of nonresidential construction
P = Average price per cabinet charged by OE
C = Average price per cabinet charged by OE's closest competitor
It is expected that next year's nonresidential construction index will stand at 160, OE's average price will be $40, and the competitor's average price will be $35.
a. Forecast next year's sales.
b. What will be the effect if the competitor lowers its price to $32? If it raises its price to $36?
c. What will happen if OE reacts to the decrease mentioned in part b by lowering its price to $37?
d. If the index forecast was wrong, and it turns out to be only 140 next year, what will be the effect on OE's sales?