The Jaico Jeans Co. has been manufacturing and selling a branded jeans

“TOUGH” over the past several years. The company has always faced tough competition from the rival firms in the business. Jaico Jeans has, however, faced the competition successfully. The secret of its success has been its ability to innovate new designs of branded jeans, some imitated and some original.

BASIC TOOLS OF ECONOMIC ANALYSIS AND OPTIMIZATION TECHNIQUES 85 Nevertheless, it finds carrying on business this way and making profit to be a tough proposition because other firms follow suit quickly with new designs. The company has planned to enter the new millennium with a new and more attractive branded jeans. It has decided to give the brand name “SNOB” to its new model. This model is intended to cater to the demand of upper class consumers.
On a preliminary assessment of the cost and price conditions the Jaico Company finds that:
( i) The production cost of the new brand is expected to be much higher than that of TOUGH.
Therefore, the cost function of TOUGH is not relevant for SNOB.
( ii) Since the cost of production is expected to be significantly higher, the price of SNOB has to be correspondingly higher than TOUGH. Therefore, the demand function for the new brand is bound to be a different one.
The Jaico Jeans Co. uses its in-house resources to find the cost and demand functions for its new brand SNOB. The research conducted by the production department estimates the cost function as TC = 1000 + 100 Q + 2 Q 2 The market research department conducts a market survey. On the basis of information collected through the survey, it has estimated the demand function as given below.
Q = 200 – 0.25 P The Jaico Jeans Co. supplies this information to you and seeks your opinion on the following aspects of its decision-making.
(

a) Given the cost and demand functions for the new product SNOB, will the introduction of the new product be profitable independent of TOUGH?
(

b) If it is profitable, then what is the profitable range for the production of jeans? This information is required for chalking out an appropriate pricing strategy in face of the competition.
(

c) What is the level of output that will maximize the profit from the production and sale of SNOB?