Question

2.   Peter Hill, the 19 year old son of the owner, says that there wasn’t enough time in the experiment. He estimates that in the second month, June, Saco Atlantic Truffle will sell 80,000 boxes at $46.00 per box. Please answer the following assuming that Peter is correct. You want to get an idea of what will happen to profits before you commit to an action and make a projection. If profits are projected to go up assuming that Peter is correct, then you will keep the current price of $46.00 during June. If the profits are projected to go down, you plan to return to $51 per box.

a. What would be the Price Elasticity of Demand compared to a month ago if Peter is correct?

b. Is elasticity elastic, inelastic or neither?

c. What does this mean and why does it matter?

d. Will Revenues increase or decrease as a result of the price cut to $46.00 at 80,000 boxes? By How much?

e.You calculate that the fixed costs for the Truffles are still $25,000 per month and total variable costs are $25 for each box. Make a projection of revenues, costs and profits for June. Will profits go up or down as a result of the price cut if Saco Atlantic Truffle Caramel sells 80,000 boxes? By How much?

Answer 1