Business/economics problem (price change)

posvibes

New member
Joined
Mar 11, 2021
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3
Hello everyone,

I am trying to solve a business/economics problem.

Below is the data:
Pillow Price p.u.Mattress soldPillows soldPillow revenuePillow production cost
Scenario 1
65 €​
3,016 801
25,536 €​
16,020 €​
Scenario 2
55 €​
4,229 1,772
49,424 €​
35,440 €​

Should the price change (from scenario 1 to scenario 2) be retained or reverted? Show calculations.

Also, is there any correlation between Mattress and Pillow?
 

JeffM

Elite Member
Joined
Sep 14, 2012
Messages
6,457
Did this come from a basic course in microeconomics?

Is there data on costs of producing mattresse? On price per mattress?

Ignoring mattresses, what is the formula for determining the profit from making and selling pillows?

In which scenario is the profit from making and selling pillows greater?

When the price of pillows is reduced, what happen to the number of mattresses sold?

Is that kind of correlation called “positive” or ”negative”?

What additional information, if any, do you need to know in order to determine which scenario is preferable?
 

posvibes

New member
Joined
Mar 11, 2021
Messages
3
It comes from a business case for consulting industry. All the data given is in the table.

I have my solution, I just want to see if I applied the correct logic. What I don't get is that Pillow revenue should equal Quantity sold * Price p.u. (but it doesn't).
 

Subhotosh Khan

Super Moderator
Staff member
Joined
Jun 18, 2007
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24,653
It comes from a business case for consulting industry. All the data given is in the table.

I have my solution, I just want to see if I applied the correct logic. What I don't get is that Pillow revenue should equal Quantity sold * Price p.u. (but it doesn't).
Good Catch!

I would ask the data-source to explain the discrepancy.
 

posvibes

New member
Joined
Mar 11, 2021
Messages
3
Ok, thanks.

Does this make sense? Would you go for w2 solution, considering the cash inflow?

Tot profitCost p.u.Profit p.u.MarginMarkupRatio p:mRatio m:p
w1
9,516 €​
20​
45 €​
69%​
225%​
3.77​
0.27​
w2
13,984 €​
20​
35 €​
64%​
175%​
2.39​
0.42​
 

JeffM

Elite Member
Joined
Sep 14, 2012
Messages
6,457
Yes, provided the missing information on marginal profit for mattresses does not offset the benefit from increased profit on pillows. It presumably is reasonable to assume that mattresses are priced to more than cover marginal cost, but it is a stupid problem not to provide the relevant data: a consultant with three brain cells would request that data.
 
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