Question

2) Office Enterprises (OE) produces a line of metal office file cabinets. The company’s economist, having investigated a large number of past data, has established the following equation of demand for these cabinets: Q = 10,000 + 60B – 100P + 50C where Q = Annual number of cabinets sold B = Index of nonresidential construction P = Average price per cabinet charged by OE C = Average price per cabinet charged by OE’s closest competitor It is expected that next year’s nonresidential construction index will stand at 160, OE’s average price will be $40, and the competitor’s average price will be $35.

a) Forecast annual sales.

b) What will be the new sales forecast if the competitor lowers its price to $32?

c) What will be the new sales forecast if OE reacts to the decrease mentioned in the previous question by lowering its price to $37? (The competitor’s price will now be $32 and the firm’s own price will be $37.) d) If the index forecast was wrong, and it turns out to be only 140 next year, what will be OE’s projected sales assuming the original price information of P = $40 and C = $35?

Answer #1

The equation of demand is Q = 10,000 + 60B – 100P + 50C. Expected value of B is 160 next year, and similarly, expected value of P will be $40, and that of C will be $35.

a) Forecasted annual sales are QE = 10,000 + 60*160 – 100*40 + 50*35 = 17,350 units.

b) The new sales forecast if the competitor lowers its price to $32, will be QEnew = 10,000 + 60*160 – 100*40 + 50*32 = 17200.

c) The new sales forecast if OE reacts to the decrease mentioned in the previous question by lowering its price to $37 is QEnew’’ = 10,000 + 60*160 – 100*37 + 50*32 = 17,500 units

d) If the index forecast was wrong, and it turns out to be only 140 next year, OE’s projected sales assuming the original price information of P = $40 and C = $35 will be QE* = 10,000 + 60*140 – 100*40 + 50*35 = 16,150 units.

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 2 minutes ago

asked 10 minutes ago

asked 12 minutes ago

asked 12 minutes ago

asked 17 minutes ago

asked 17 minutes ago

asked 17 minutes ago

asked 19 minutes ago

asked 21 minutes ago

asked 25 minutes ago

asked 25 minutes ago

asked 38 minutes ago