Business/economics problem (price change)

[posvibes]

Hello everyone,

I am trying to solve a business/economics problem.

Below is the data:

	Pillow Price p.u.	Mattress sold	Pillows sold	Pillow revenue	Pillow 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]

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]

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).

 

[Deleted member 4993]

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]

Ok, thanks.

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

	Tot profit	Cost p.u.	Profit p.u.	Margin	Markup	Ratio p:m	Ratio m
w1	9,516 €​	20​	45 €​	69%​	225%​	3.77​	0.27​
w2	13,984 €​	20​	35 €​	64%​	175%​	2.39​	0.42​

 

[JeffM]

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.