Scalper Inc. is trying to determine whether to give a $15 rebate, to cut the price to $8, or to have no price change on a software networking product.
Currently, 40,000 units of the product are sold each week for $45. The variable cost of the product is $6. The most likely case appears to be that a $15 rebate will increase sales 35% and about two-thirds of all people will claim the rebate.
For the price cut, the most likely case is that sales will increase 25%.
1. Given all other assumptions, use Excel to create a model that describes all the scenarios given.
2. Holding all assumptions constant except the rebate claim rate, at what rebate claim rate would the rebate and price cut be equally desirable?
3. Is the no price change scenario a good choice? When?