Tennis Products, Inc., produces three models of high-quality tennis rackets. The following table contains recent information on the sales, costs, and profitability of the three models: Current Price Average Quantity Sold (Units/Month) 15,000 Variable Cost Per Unit Total Revenue ($) Contribution Margin Per Unit ($) Contribution Margin* ($) Model ($) ($) 30 450,000 15.00 15 225,000 B 5,000 35 175,000 18.00 17 85,000 10,000 45 450,000 20.00 25 250,000 Total $1,075,000 $560,000 *Contribution to fixed costs and profits. The company is considering lowering the price of Model A to $27 in an effort to increase the number of units sold. Based on the results of price changes that have been instituted in the past, Tennis Products' chief economist estimates the arc price elasticity of demand to be -2.5. Furthermore, she estimates the arc cross elasticity of demand between Model A and Model B to be approximately 0.5 and between Model A and Model C to be approximately 0.2. Variable costs per unit are not expected to change over the anticipated changes in volume. The proposal to cut the price of Model A to $27 would the total revenue from Model A from $450,000 to $ The contribution margin of Model A would and Now consider the entire line of tennis rackets. The price cut would the contribution margin from $560,000 to $ Model A. the total revenue from $1,075,000 to $ . Based on this analysis, the firm lower the price of Tennis Products, Inc., produces three models of high-quality tennis rackets. The following table contains recent information on the sales, costs, and profitability of the three models: Current Price Average Quantity Sold (Units/Month) 15,000 Variable Cost Per Unit Total Revenue ($) Contribution Margin Per Unit ($) Contribution Margin* ($) Model ($) ($) 30 450,000 15.00 15 225,000 B 5,000 35 175,000 18.00 17 85,000 10,000 45 450,000 20.00 25 250,000 Total $1,075,000 $560,000 *Contribution to fixed costs and profits. The company is considering lowering the price of Model A to $27 in an effort to increase the number of units sold. Based on the results of price changes that have been instituted in the past, Tennis Products' chief economist estimates the arc price elasticity of demand to be -2.5. Furthermore, she estimates the arc cross elasticity of demand between Model A and Model B to be approximately 0.5 and between Model A and Model C to be approximately 0.2. Variable costs per unit are not expected to change over the anticipated changes in volume. The proposal to cut the price of Model A to $27 would the total revenue from Model A from $450,000 to $ The contribution margin of Model A would and Now consider the entire line of tennis rackets. The price cut would the contribution margin from $560,000 to $ Model A. the total revenue from $1,075,000 to $ . Based on this analysis, the firm lower the price of
