=+Anticipated sales price per unit $30 Variable cost per unit* $1 5 Anticipated volume 500,000 Production costs $5,000,000 Anticipated advertising $2,500,000

*The cost ofthe video game, packaging, and copying costs.

Two managers, Molly Smith and Alex Clarke, had the following discussion ofways to increase the profitability ofthis new offering.

Molly: I think we need to think ofsome way to increase our profitability. Do you have any ideas?

Alex: Well, I think the best strategy would be to become aggressive on price.

Molly: Flow aggressive?

Alex: Ifwe drop the price to $22 per unit and maintain our advertising budget at $2,500,000,1 think we will generate sales of 1,400,000 units.

Molly: I think that’s the wrong way to go. You’re giving too much up on price. Instead, I think we need to follow an aggressive advertising strategy.

Alex: How aggressive?

Molly: Ifwe increase our advertising to a total of $5,000,000, we should be able to increase sales volume to 1,250,000 units without any change in price.

Alex: I don’t think that’s reasonable. We’ll never cover the increased advertising costs.