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Question 1: a) A company currently has a demand for one of its products of 2000 units at a selling price of $30 per unit.

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Question 1: a) A company currently has a demand for one of its products of 2000 units at a selling price of $30 per unit. It has been determined that a reduction in selling price of $1 will result in additional sales of 100 units. The costs of production are $1000 (fixed) together with a variable cost of $20 per unit. Calculate the selling price p.u. at which the profit will be maximized. (Marks 3) b) Wild Cat plc intends to launch a commemorative product for the 2020 Olympic games onto the UK market commencing 1 August 2018. The product will have variable costs of f16 per unit. Production capacity available for the product is sufficient for 2200 units per annum. Wild Cat plc has made a policy decision to produce to the maximum available capacity during the year to 31 July 2019. Demand for the product during the year to 31 July 2019 is expected to be price dependent, as follows: Selling price per unit Annual sales (f ) (units) 20 2200 30 1600 40 1200 50 1100 60 1000 70 - 267.4 700 80 400 It is anticipated that in the year to 31 July 2020 the availability of similar competitor products will lead to a market price of f40 per unit for the product during that year. During the year to 31 July 2020, Wild Cat plc intend to produce only at the activity level required to enable them to satisfy demand, with stocks being run down to zero if possible. This policy is intended as a precaution against a sudden collapse of the market for the product by 31 July 2020. Required: (Ignoring tax and the time value of money.) (a) Determine the launch price at 1 August 2018 which will maximize the net benefit to Wild Cat plc during the two-year period to 31 July 2020 where the demand potential for the year to 31 July 2020 is estimated as (i) 4000 units. (Marks 7)

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