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This capstone project will place students in the position of a business manager making pricing decisions. You will apply the concepts learned during the course
This capstone project will place students in the position of a business manager making pricing decisions. You will apply the concepts learned during the course to maximize profit. Starting from raw data you will estimate demand and cost functions, using that information to support your decision. You are the product manager for wireless headphones and your company has the exclusive license of the product. The company's marketing department models the demand function for your game as Q=a+bP+cM+dPs, where Q is the annual demand for your product measured in thousands of units, P is the price of the headphones, M is the average annual family income measured in thousands of dollars, and PS is the price of the stereos with the technical specifications needed to have an excellent listening experience. The output given by Excel after running a regression is the following: 5. (10 pts.) Draw an accurate graph (ideally use a computer to do so) showing market demand, marginal revenue, and the area representing your total revenue. 4. (10 pts.) Assume that you have excess inventory and, consequently, are just worried about maximizing revenue. What price should you charge? What would be your revenue? What is the price elasticity of demand at this price? 6. (10 pts.) Next year, after selling the excess product, you must factor into your pricing decision the production costs. The production manager of the firm estimates (also using linear regression) that the variable cost per unit is given by AVC=285.5Q+Q2 where Q, again, is measured in thousands of units. The annual fixed cost is $270,000. Using this information express the seven types of costs (FC, VC, TC, AFC, AVC, ATC, and MC ) as a function of
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