Question

Pisa​ Pizza, a seller of frozen​ pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $ 19 million per year. While many of these sales will be to new​ customers, Pisa Pizza estimates that 34 % will come from customers who switch to the​ new, healthier pizza instead of buying the original version.

a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new​ pizza?

b. Suppose that 49% of the customers who will switch from Pisa​ Pizza's original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. What level of incremental sales is associated with introducing the new pizza in this​ case?

Answer 1

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Answer:

a.

Soution :- incremental sales associated with introducing the new pizza = New Pizza sale - lost sales of Original version pizza.

   = 19 - 0.34 (19)

   = $ 12.54 Milion

Conclusion:- The level of incremental sales that is associated with introducing the new pizza is $ 12.54 Milion.

b.   incremental sales associated with introducing the new pizza = New Pizza sale - lost sales of Original version pizza from customers who will not have switch to another brand.

   = 19 - 0.51 (0.34)(19) = $ 15.71 Milion

Conclusion:- The level of incremental sales that is associated with introducing the new pizza in case (b) is $ 15.71 Milion.