Assignment:
1.Our company wants to invest in a new technology driven product. It is a significant investment, so management wants a thorough evaluation. Explain the analysis tools at their disposal to evaluate this opportunity. Describe the acceptance criteria for each as well as the relative advantages and disadvantages or each.
2.In the above question, the company is considering converting 10, 000 sq feet of manufacturing space for the new product's production. They are considering using the space for a warehouse, but they could rent space down the street. How should they treat the warehouse option in their analysis? Hint: what is the opportunity cost?
3.THEIR company is facing cost increases and is considering passing these increases to their customers by increasing selling prices. Use the concept of elasticity to explain why this could backfire, and how to analyze this option.
4. Even though elasticity is expressed as a positive number, the ratio is actually negative. Explain whay elasticity is negative.
5. I am negotiating with a supplier to reduce prices over time. it is very difficult to ask a supplier to reduce their margins. Using the concepts of economies of scale and learning curve, give me some ammunition to use in my negotiations.
6. Over the past several years, prices of personal computers have declined significantly. Some possible causes are a reduction in the cost of memory storage and other components, and ipad and other tablets have been introduced into the market. Use a supply and demand curve to demonstrate how each of the above drivers can drive prices down
7. The federal Reserve is increasing the supply of money in the economy to lower interest rates. Using supply and demand concepts, explain why the FED using this tool. Hint: what is the cost or price of money, and what happens to aggregate demand (the demand for all products in the economy) if interest rates decline?
8. In a competitive industry, companies have little influences over pricing. Explain why this is the case, and what companies can do to gain more control over prices.
9. HIS company sells a product in the market at a premium price, but their market share has been declining and research has found that their customers are generally more wealthy than average. Management is considering introducing a less expensive product with fewer features. The CFO has warned the CEO that their premium product could be cannibalized. What is the CFO talking about?
10. HER company is considering advertising during the Super Bowl, which is very expensive, and which is expected to further differentiate her product from the competition. Will differentiation make the product more elastic or inelastic? How can HER company determine how much she should spend? How does elasticity affect the decision?
11. Kohls and penny's have two different pricing philosophies. Kohls prices, unless items are on sales tend to be higher than penny's. however, Kohls often provides coupons to increase sales. This is a form of price discrimination. Why doesn't kohls do what penny's doing and just lower prices? Extra Credit: How are things working out for Penny's?
12. My Company wants to improve their profitability, by either raising prices for better unit margins, or lower prices to increase volume. Unfortunately, you company is likely considering their own pricing strategy. Display these options in a table and predict how things will play out?
My COMPANY YOUR COMPANY
Both companies lower prices $100 $100
My company lowers prices, and
YOUR company raises prices $400 ($200)
MY company lower prices and
Your company lowers prices ($200) $400
Both companies raise prices $200 ($200)
13. Explain how the Expected Value concept can help a company factor risk in its investment and pricing decisions. Extra Credit: Prepare an example.