Answer all questions
Please complete the following two applied problems:
Jessica Alba, a famous actress, starts the baby and family products
business, The Honest Company, with Christopher Gavigan. Alba and Gavigan
set up their site so families can choose what kinds of non-toxic,
all-natural products they'd like to use and get them in a bundle.
Families can choose all kinds of products from food to hygiene
necessities and cleaning supplies. Suppose they are thinking of
expanding their business into five domestic markets: Phoenix, Dallas,
Chicago, New York, and Atlanta. Assume their primary goal of business is
to maximize economic profits, although they want to do business
Show all your calculations and process. Describe your answer for each question in three- to five-complete sentences.
- You are a business adviser for Alba and Gavigan. Describe a
skimming price and a penetration price, and advise them whether they
should charge a skimming price or a penetration price, with supportive
reasoning for and against each pricing alternative.
- Are they likely to make economic profits initially? Can they
continue to make economic profits in the long term? Why or why not?
- What advice would you give to Alba and Gavigan to help them make more profit in the long term?
You operate your own small building company and have decided to bid on a
government contract to build a pedestrian walkway in a national park
during the coming winter. The walkway is to be of standard government
design and should involve no unexpected costs. Your present capacity
utilization rate is moderate and allows sufficient scope to understand
this contract, if you win it. You calculate your incremental costs to be
$268,000 and your fully allocated costs to be $440,000. Your usual
practice is to add between 60% and 80% to your incremental costs,
depending on capacity utilization rate and other factors. You expect
three other firms to also bid on this contract, and you have assembled
the following competitor intelligence about those companies.
Show all of your calculations and processes. Describe your answers in three- to five-complete sentences.
- What price would you bid if you must win the project?
- What price would you bid if you want to maximize the expected value of the contribution from this contract?
- Defend your answers with discussion, making any assumptions you
feel are reasonable and/or are supported by the information provided.